Question

14.

Supposed you want to increase your firm's revenues by increasing price. In this case, you want consumers who have an inelastic demand. T/F Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.1.   The elasticity of demand for this product is ________. Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.2.   We would refer to the elasticity of demand as being ___________. A.  elastic B.  inelastic C.  unitary elastic Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.3.   As a result of the price change, we know that revenues will: Brastow Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 620. 8.4.   Based on what you have learned in this question and your intuition, which of the statements is correct? A.  We want to increase prices when consumers are inelastic. That will increase revenue. B.  We want to decrease prices when consumers are inelastic. That will increase revenue. C.  We want to decrease prices when consumers are elastic. That will increase revenue. Elasticity of Demand is a measure of the slope of the demand curve. T/F

Answer 1

1.
TRUE
When the demand is inelastic the total revenue moves in the direction of price change.Therefore, a increase in the price will lead to a increase in the total revenue.
2.
Elasticity=-0.658
Q1 Q2 Average Q2-Q1 % change in Q P1 P2 Average P2-P1 change in P Ep
Between 1 and 2 500 620 560 120 21.42857143 25 18 21.5 -7 -32.55813953 -0.658163265

average=(Q2+Q1)/2
3.
inelastic
Since the elasticity is less than 1
4.
Revenues will fall
When the demand is inelastic the total revenue moves in the direction of price change.Therefore, a decrease in the price will lead to a decrease in the total revenue.