Question

In: Economics

You own a small business and want to increase the total revenue you collect from sales...

You own a small business and want to increase the total revenue you collect from sales of your product.

In each of the scenarios described​ below, what can you do to increase total​ revenue?

Scenario

Action

The demand for your product is inelastic.

▼

Total revenue cannot increase with changes in price.

Price of the product should be increased.

Price of the product should be decreased.

The demand for your product is elastic.

▼

Total revenue cannot increase with changes in price.

Price of the product should be increased.

Price of the product should be decreased.

The demand for your product is unit elastic.

▼

Price of the product should be decreased.

Total revenue cannot increase with changes in price.

Price of the product should be increased.

Solutions

Expert Solution

Answer : 1) The answer is option B : "price of the product should be increased".

Because for inelastic demand if price rise then quantity demanded does not change too much. For this reason total revenue increase. Hence except option B other options are not correct. Therefore, option B is the correct answer.

2) The answer is option C : "price of the product should be decreased".

Because for elastic demand if price fall then people buy more quantities which increase the total revenue. Hence except option C other options are not correct. Therefore, option C is the correct answer.

3) The answer is option B : "total revenue cannot increase with changes in price".

For unit elastic demand if price change then the quantity demanded change by the same amount. Hence for unit elastic demand the changes in price level does not change the total revenue. Hence except option B other options are not correct. Therefore, option B is the correct answer.

Rahul Sunny answered 2 years ago
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