Question

A local pizzeria sells 400 medium pizzas per week at a price of $10 each. The price elasticity of demand for its pizza is −4.

In the scenario above, if the pizzeria cuts the price by 10%, it will sell _____ pizzas per week.

	360
	240
	520
	440
	560

In the scenario above, as a result of the 10% price cut, the pizzeria's total revenue will:

	Increase by 17%
	Decrease by 10%
	Increase by 26%
	Remain unchanged

Decreased by 19%

Answer 1

price elasticity of demand =%change in quantity/%change in price
-4=%change in quantity of pizza/(-10)
%change in quantity of pizza=-4*(-10)=40%
the new quantity =old quantity *(1+%change)
=400*(1.4)
=560 units

option 5
-------------------
total revenue =P*Q
old total revenue =10*400=4000
new price =10*(1-0.1)=9
new revenue =560*9
=5040

change in revenue =((new revenue -old revenue )/old revenue)*100
=((5040-4000)/4000)*100
=26%
the revenue increases by 26%
option 3