A.

Calculate the arc price elasticity of demand for Nachos Supreme

appetizers.
Answer
Price elasticity of demand for Nachos Supreme appetizers. = Percentage
change in Quantity demand / Percentage change in price
Percentage change in Quantity demanded of Nachos Supreme appetizers =
(180-60)/ (180+60)/2
Percentage change in Quantity demanded of Nachos Supreme appetizers
=1
Percentage change in Price = (3-5)/(3+5)/2 = -0.5
Price elasticity of demand for Nachos Supreme appetizers = 1/-0.5 = -2

B. Calculate the arc cross-price elasticity of demand between beverage

sales and appetizer
prices.
Answer
Cross-price elasticity of demand between beverage sales and appetizer =
Percentage change in Quantity of beverage sale / Percentage change in
price of appetizer
Percentage change in Quantity of beverage sale = (150-30)/(150+30)/2 =
1.33
Percentage change in price of appetizer = (3-5)/(3+5)/2 = -0.5
Cross-price elasticity of demand between beverage sales and appetizer =
1.33/ -0.5 = -2.66
C. Holding all else equal, would you expect an additional appetizer price
decrease to $2.50 to cause both appetizer and beverage revenues to rise?
Explain
Answer
Yes , decreasing price to $2.50 would increase revenues for both appetizer
and beverage, because both appetizer and beverage has elastic demand and
price decrease would leads to much greater increase in quantity sold and
hence total revenue will rise for both.

Hint: For Arc use average price (P1+ P2/2) and quantity as average
quantity (Q1+Q2/2).