Question

Discuss how elasticity affects revenue.

Describe the six different forecasting techniques and discuss pros/cons of each.

Answer 1

1. Revenue depends on the elasticity of demand for the good.

If the good has an elastic demand, increasing price will decrease revenue and the decerasing price would increase revenue. This is because in case of an elastic good, the % change in quantity demanded is larger than the % change in price.

If the good has an inelastic demand, increasing price will increase revenue and a decreasing price would decrease revenue. This is because in case of an inelastic good, the % change in quantity demanded is smaller than the % change in price.

If the good is unitary elastic, increasing or decreasing the price will not change the revenue. This is because, in case of a unitary elastic good, the % change in quantity demanded is equal to the % change in price.