Question

Define the terms elastic, inelastic, and unit elastic. Explain why a team maximiz- ing revenue would always operate at the point of unit elasticity on their demand curve

Answer 1

"Maximizing Revenue would always at the point of unit of elasticity on their demand curve because, Revenue = Quantity times Price Unit elasticity = (Price) Elasticity of Demand of - 1. Elasticity of Demand = change in quantity/change in price. ""Increase in unit elasticity means, therefore, is that any increase in the price cause a decrease in demand that keeps revenue the same"". In a normal market price which maximizes revenue must have this property, by definition, because of a higher price produces more revenue, we obviously have not maximized it on the other hand, if a lower price produces more revenue, we have gone too far. \r\n Elastic: when a small change price of a good, cause a greater change in the quantity demanded. Inelastic: A change in the price of a good, will not have a significant effect on the quantity demanded. Unitary: A change in demand produces the same change in the "