Question

PLT restaurant sold 2,500 lunch boxes during the past month with a price of $10.00 per lunch box. During this month, the price of a lunch box is increased by $5.00 and the total number of lunch boxes sold now is 2,200. What is the price elasticity of demand? What is the effect of the decrease in the #of lunch boxes to the total revenue for the PLT restaurant during this month?

Answer 1

	Price	Quantity sold	Total revenue
	$10	2,500	$25,000
	$15	2,200	$33,000
Change	$5	- 300	$8,000
% change	5/10 = 50%	- 300/2,500 = 12%

Price elasticity of demand = % change in quantity sold/% Change in price

= 12%/50%

= 0.24

Due to increase in the price of the lunch box, quantity sold of lunch boxes decreased during the month but total revenue during the month increased by $8,000

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