“Green Stuff” is a regional chain of small restaurants.

The Green Stuff menu includes only salads, all priced at

$8.95, and beverages. Each restaurant serves an average of 800 salads a week at that price. The company wants to raise the price of their salads to $10.95 but is concerned that the price increase will lower sales volume and could actually lower total revenue for the stores. To determine whether they should raise salad prices, the company has tested the higher price of $10.95 in some of their stores. The results of their study showed that when the price of the salads was increased, average store sales declined from 800 salads per week to 650.

Calculate the price elasticity of demand for Green Stuff’s price increase experiment. What conclusions can be drawn from the price increase experiment?

What would you recommend that Green Stuff do?