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16 October, 08:44

You are the manager of a restaurant and would like to increase revenue. The host staff suggests that you should increase the price of drinks and food, but the servers suggest decreasing the price of drinks and food. You are unsure if you should increase or decrease price, but you know that - the servers think demand for drinks and food is inelastic. - the host staff thinks demand for drinks and food is elastic. - the servers thinks demand for drinks and food is elastic

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  1. 16 October, 08:59
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    - the servers thinks demand for drinks and food is elastic

    Explanation:

    Demand elasticity is a microeconomic concept that aims to measure the sensitivity of demand in the face of price changes. When price goes up and demand goes down a lot, demand is said to be price elastic. When price rises and demand does not change significantly, demand is said to be inelastic to price.

    In the opinion of the hosters the price of food and drink should rise. This means that in their view, demand is inelastic, that is, little sensitive to rising prices. On the contrary, severs believe that demand is elastic, very price sensitive. Thus, rising prices would decrease demand and lowering prices would increase demand and hence revenue.
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