Question

1. when decreasing the price of diapers from $10 to $8 dollars total revenue Increases. demand price is inelastic, unit elastic or elastic?

2. when decreasing the price of diapers from $4 to $3 total revenue Decrease demand price is unit elastic, inelastic, or elastic?

3. The business would want to know the profit maximizing price at this price, demand price is inelastic, unit elastic or elastic?

Answer 1

a) While decreasing the price of the good the revenue has increased that tells us that the demand for the good was elastic. Only for the elastic good the revenue will increase after the decrease in the price.

b) If the total revenue decreased after an increase in the demand then we can say that the demand for the goof was inelastic.

c) For profit maximizing the business will sell the good at a point where the Marginal revenue and the marginal cost are same .the demand at this price will always be elastic.