A restaurant owner learns that when he raises the price of his fries from $1 to $1.50, the quantity demanded falls from 100 to 90 baskets. This owner should- raise the price of fries- lower the price of fries- keep the price of fries same**Explanation:**This text presents a basic economic scenario of price elasticity of demand. It shows how customer demand changes in response to price increases. The owner observes that increasing the price results in a decrease in the number of baskets sold, illustrating a typical demand behavior. The question asks the owner to decide on a pricing strategy based on this information. There are no graphs or diagrams accompanying this text.

In order to answer the given question, first we need to calculate the price elasticity of demand.Where, ∆q = change in quantity demanded ∆p = change in price p = initial price q = initial quantity Here, ∆q = 100 - 90 = 10 ∆p = 1.50 - 1 = 0.50 p = 1 q = 100 Since elasticity value is less than 1, we can conclude that demand in inelastic. This means that an increase in price will not have much effect on the quantity demanded. Hence it will be profitable for the restaurant owner to raise the price of fries. Answer: First option

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A restaurant owner learns that when he raises the price of his fries from $1 to $1.50 the quantity demanded falls from 100 to 90 baskets. This owner should raise the price of fries lower the price of fries keep the price of fries same

A restaurant owner learns that when he raises the price of his fries from $1 to $1.50 the quantity demanded falls from 100 to 90 baskets. This owner should raise the price of fries lower the price of fries keep the price of fries same

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A restaurant owner learns that when he raises the price of his fries from $1 to $1.50, the quantity demanded falls from 100 to 90 baskets. This owner should

- raise the price of fries
- lower the price of fries
- keep the price of fries same

**Explanation:**

This text presents a basic economic scenario of price elasticity of demand. It shows how customer demand changes in response to price increases. The owner observes that increasing the price results in a decrease in the number of baskets sold, illustrating a typical demand behavior. The question asks the owner to decide on a pricing strategy based on this information. There are no graphs or diagrams accompanying this text.

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