If your restaurant raises the price for a lasagna entree from $12 to $13, the restaurant's total revenue will go up if A) Price elasticity of lasagna is -2

Economics Jan 19, 2021

If your restaurant raises the price for a lasagna entree from $12 to $13, the restaurant's total revenue will go up if

A) Price elasticity of lasagna is -2.0

B) Income elasticity suggests your lasagna is a "normal" good

C) The lasagna item has an inelastic demand

D) The parking garage next to the restaurant increases prices by 25%

Expert Solution

C. The lasagna item has an inelastic demand.

Reason: When the demand of a good is inelastic in nature, the total revenue of the firm tends to go up when the price of the good increases. This happens because, demand being inelastic in nature, the percentage increase in the price of the good will be greater than the percentage decrease in quantity demanded. Hence when the price of lasagna increases from $12 to $13, the overall revenue will go up.

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