Question

If the elasticity of demand for a company’s product is estimated to be 1.72, what would you advise the company to do if their objective is to decrease revenue?

Answer 1

The elasticity of demand is 1.72. It means the demand is elastic at the point. A revenue is maximum at unit elastic demand and decreases as we go far from the unit elastic demand.

Price and elasticity(absolute value) are positively related to the increase in the price increases elasticity. An increase in price when the demand is elastic the elasticity increases means it goes far from the unit elastic demand means the revenue decreases.

The company should increase its price to decrease revenue.