Suppose that own-price elasticity of demand for Coca-Cola is -1.5. In order for The Coca-Cola Company...
Suppose that own-price elasticity of demand for Coca-Cola is -1.5. In order for The Coca-Cola Company to increase its total revenue, and therefore profitability, what must it do to the current price of Coca-Cola?
Homework Answers
Since absolute value of price elasticity of demand is higher than 1, demand is elastic. With elastic demand, a N% rise (fall) in price will decrease (increase) quantity demanded by more than N%, so total revenue decreases (increases) when price is increased (decreased).
So to increase revenue and profitability, the firm should decrease its price.
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