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Suppose that you are in charge of pricing at a local hotpot restaurant. The business needs...

Suppose that you are in charge of pricing at a local hotpot restaurant. The business needs to increase revenue and your job is on the line. What should you do to your prices?

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Answer #1

In order to increase revenue through change in the price level, the most important thing to consider is the price elasticity of demand.

The products or food items for which the price elasticity of demand is inelastic (the percentage change in quantity demanded is less than the percentage change in price level), the revenues can be increased by raising the price level.

However, if the restaurant is selling products with elastic demand, the percentage increase in quantity demanded will be more than the percentage deline in price level.  In this case, the revenues can be increased by declining the price levels.

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