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You are the sales manager for a pizza company and have been informed that the price elasticity of demand for your most popular pizza is greater than 1 (that is, the elasticity coefficient or Ed is greater than 1). To increase total revenues, you should

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Answer:

decrease the sales price of that pizza.

Explanation:

When the price elasticity of demand (PED) is elastic, a small decrease in price will cause a larger increase in the quantity demanded.

For example, the PED is 1.5 (elastic) and the price of pizza is $8 and you sell 100 pizzas.

Prior to the price change total revenue = $8 x 100 = $800

You decrease the price by 10% to $7.20 per pizza, and the quantity demanded increases by 15% (= 1.5 x 10%) tot a total of 115 pizzas. Total revenue = $7.20 x 115 = $828

Parrain

In other to increase total revenues, you as the sales manager should reduce the price of pizza.

Price Elasticity of Demand

  • Shows the effect that changing prices will have on the demand for a good.
  • An ED greater than 1 means that the change in demand will be greater than the change in price.

If you reduce prices therefore, a situation will arise where more people demand the pizzas than the reduction in price. This will lead to more revenue for the business.

In conclusion, reduce the price.

Find out more on price elasticity of demand at https://brainly.com/question/25269265.

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