You are the curator of a butterfly sanctuary. The sanctuary is running low on funds, so...

You are the curator of a butterfly sanctuary. The sanctuary is running low on funds, so you decide to increase revenue. What options do you have to consider? Should you raise or lower the price of admission? Explain your reasoning in terms of demand and elasticity.

This is for a Macroeconomics class please help me answer this

Expert Solution

Whether to increase or decrease the price of admission depends on the elasticity. Elasticity is the responsiveness of the quantity demanded to the change in the price.

Elasticity = %change in quantity demanded/ % change in price

If the elasticity of demand is greater than 1, it means that the percentage change in demand will be higher than the percentage change in price. So if we increase the price in such situation, the demand will decrease by a higher percentage than the percentage by which the price will increase. So this cause a decrease in total revenue. So if elasticity is greater than 1, the admission prices should be decreased in order to increase revenue.

If the elasticity of demand is lesser than 1, it means that the percentage change in demand will be lesser than the percentage change in price. So if we increase the price in such situation, the demand will decrease by a lower percentage than the percentage by which the price will increase. So this cause an increase in total revenue. So if elasticity is less than 1, the admission prices should be increased in order to increase revenue.

Rahul Sunny answered 1 year ago

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