Reference no: EM132227738

You've been hired by a taco truck owned by a pair of brothers. They need some help set their prices for this upcoming summer. Unfortunately, they've only been able to gather data on the elasticity of demand.

1. They've told you the elasticity of demand with respect to temperature is -2.5. Explain what this number means. Do they prefer hot weather or cold weather?
2. What happens to their demand if the temperature rises from 80° to 85°? Interpret the number you found. Hint: %ΔQ = ε * (%ΔVariable)
3. The brothers' uncle has an air-conditioned building that he is willing to rent out to the brothers for them to use instead of their truck. If they chose to switch to the building instead of their truck, their new elasticity of demand with respect to temperature is -0.5. Assuming that the brothers can afford this rent as long as the sales don't drop below 10%, will they choose to rent the building or not? Explain your reasoning.