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Case Study:
As the owner of Heat and Eat Soups, a soup manufacturer, your company provides 3-lb bags of frozen soups to local restaurants and cafes in three popular varieties: French onion, clam chowder, and chicken noodle. The staff at these establishments like the convenience of your soups as well as the additional menu options they provide.
Your mission is to offer soups that contain the highest quality ingredients available at an affordable price. When onions rose in price last year, you were able to compensate your earnings through the volume of sales of your most popular product, chicken noodle soup.
However, a recent and significant increase in the price of chicken, left you with no option but to increase the price of the chicken noodle soup 10% from $10 to $11.00 per 3-lb bag. As a result, the quantity of chicken noodle soup sold went from 100 to 80 bags per week a decrease of 20%.
What is the impact on your total sales revenue? Calculate the elasticity. Is the chicken noodle soup elastic or inelastic? Explain why the change in price resulted in the change in sales.
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