Question

The Federal Trade Commission has the responsibility of investigating and regulating unfair advertising practices. The Commission has issued strong new guidelines for the funeral industry.

If a mortician was aware of the relationship between elasticity of demand and total revenue, how might he or she take advantage of this information? (Details and explanation, please).

Answer 1

Ans:Introduction:

Elasticity of demand-Elasticity of demand is percentage change of quantity demand while chnaging percentage of price. If a percentage of  demand changes more than percentage changes in price than its knowns as elastic if it does not response such changes in qunatity demanded with same percentage change in price than its known as inelastic demand .

Relationship between elasticity and Total revenue:

Total revenue is the product of price and quantity sold.(P×q).Quantity of product sold completely depends on the elasticity of product .If a Total revenue of a firm increases while increasing price of product than its said inelastic.If total revenue of a firm decrease while increasing price of product than its known as elastic demand because while increasing price of goods, demand of that good must be decreases that lead to decrease in quantity sold as a result decrease in revenue.

*If a mortician was aware of the relationship between elasticity and Total revenue than initially he must identify weather consumers were elastic towards his service or inelastic towads it .once he identified that  than accordingly he can decide weather he need to increases the price of his service or not .If consumers are inelastic than change in price is not going to affect the demand of his services therefore does not affect his total revenue as well where as if its elastic than change in price is going to affect the demand that further goiing to affect total revenue.