Read the article titled "Field Testing, Slice by Slice." Then respond to the following questions.
1) A portion of the article reads, “According to Eli Halali, who owns the 2 Bros. Pizza chain with his brother, the 50% price hike is an experiment to gauge customer reaction to a larger and higher-quality slice. The pilot, he said, is feasible because customers turned off by the higher price need only walk three storefronts down to the chain's 32 St. Mark's Place location, where slices remain $1.” Relate this statement to elasticity and explain why the owner would be interested in finding the elasticity of demand for his pizza slices.
2) If Mr. Halali raises his price to $1.50 and then revenues declined, what would this indicate about the price elasticity of demand for his pizza?
3) Discuss, using the information provided in the article, whether you believe the demand for Mr. Halali's pizza is relatively elastic or inelastic. Use your knowledge of the determinants of elasticity.
Sample Solution