Answer: Decrease her prices.
Explanation:
The elasticity of demand shows the change in quantity demanded as a result of a change in price.
In this case, if price decreases by 1%, quantity demanded for chocolate would increase by 2.5%.
If she wants to increase her revenue therefore, she should decrease the price.
For example:
If the demand was 10 chocolate bars a day, she would earn:
= 10 * 10
= $100 a day
If she decreased the price by 10%, price would be:
= 10 * ( 1 -10%)
= $9.00
Quantity demanded would be:
= 10 * (1 + 25%)
= 12.5 bars
Revenue would become:
= 12.5 * 9
= $112.50 which is more than the previous $100 she was making.
