At Tony's Restaurant, the quantity of large pizzas sold is 200 at the unit price $15. Suppose the price elasticity of demand for pizzas by the initial value method is 1.5, and you would like to increase the quantity sold to 250. Then the new price must be
A) $13.
B) $12.50.
C) $11.50.
D) $11.25.

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) formula by the initial value method is: PED = (% change in quantity demanded) / (% change in price). Given PED = 1.5, initial quantity = 200, and desired quantity = 250, the % change in quantity demanded = ((250 - 200) / 200) * 100 = 25%. To find the % change in price, rearrange the formula: % change in price = (% change in quantity demanded) / PED = 25% / 1.5 = 16.67%. The initial price is $15, so the decrease in price = 15 * 16.67% = $2.50. Therefore, the new price = $15 - $2.50 = $12.50.

At Tony's Restaurant, the Quantity of Large Pizzas Sold Is