“Due to an increase in operating costs, Tim Hortons restaurants has changed the pricing on select baked goods and lunch items this week,” a spokeswoman for the company said Friday. The coffee and doughnut chain says the price of a muffin is five cents higher, while sandwiches have gone up by about 10 cents. The price of coffee has not changed.
This is the Canadian Press Published Friday, Aug. 03 2012. Check the link below for your interest:
http://www.theglobeandmail.com/news/national/tim-hortons-raises-price-of-muffins-sandwiches-citing-higher-operating-costs/article4462085/
Elasticity of demand is of particular interest to businesses that need to determine how a price change will affect their total sales revenue. Total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that results from a price change (when all other factors are constant).
If price cut increase total revenue, demand is elastic.
If price cut decrease total revenue, demand is inelastic.
If price cut leaves total revenue unchanged, demand is unit elastic.
Graph 1, at the top half of demand curve, the demand is elastic. Graph 2 shows that as the price of muffin falls from $30 to $15, quantity demand increase from $0 to $$25, demand is elastic, total revenue increases.
At the midpoint, at a price of $15, demand is unitary and graph 2 shows total revenue is at its maximum.
As a prices are reduced below $15, graph 1 shows that demand is inelastic and graph 2 show that the total revenue fall.
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