John is the manager of the Corner restaurant. The restaurant has 125 seats and has been open for 12 years. Historically the restaurant was fully booked every day, however lately this has changed. John has been reviewing the numbers for June, he is disappointed to see that the overall revenues are still down.
Since the start of the vear John was concerned to see that the overall revenues for the restaurant kept trending down and decided to introduce a new updated menu in June hoping it would attract more customers. Chef Jenny decided to only use local products only for the new menu. The new menu prices were determined by using a traditional pricing model Product Cost Percentage. The cost prices of the local products are higher and by using this model the selling price for the menu items increased automatically. However, because of the quality of these local products, John and Jenny were convinced people would be happy to pay more for these new menu items. John and Jenny are desperate what to do next?

 

Question:

Reading the facts in the case study, do you believe the restaurant market for the Corner restaurant is Elastic or Inelastic? Explain why it important for John to understand why the market is elastic or inelastic?