Question

Elasticity is related to a firm's total revenue and changes as you move up and down...

Elasticity is related to a firm's total revenue and changes as you move up and down the demand curve. Suppose you are a marketing manager charged with deciding whether to increase the price of goods. The company's goal in considering that decision is to increase total revenue. If you were facing elastic demand, would a price increase be a good way to increase total revenue? If you were facing inelastic demand, would a price increase be a good way to increase total revenue? Since elasticity changes as you move up and down the demand curve, how can the marketing manager know whether demand for a product is elastic or inelastic?

Homework Answers

Answer #1

If the demand for a good is Inelastic/Ed<1, then  an increase in price will result in an increase in total revenue and a decrease in price will cause a fall in total revenue.

If the demand for a good is Elastic/Ed>1, then  an increase in price will result in an decrease in total revenue and a decrease in price will cause an increasein total revenue.

The manager can see the response of the total revenue in relation to fall or rise in the price of the commodity.

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