Question

In each of these scenarios, would you raise or lower the price to increase total revenue?

1. You are the CFO of Subway, a fast food sandwich chain that has a lot of competitors.

2. You own a gas station.

3. You are an advisor to the CFO of First Energy in Toledo which supplies electricity to people’s homes.

4. You own a jewelry store and you are deciding how much to charge for a diamond engagement ring.

Answer 1

1 - I will have to lower the price because the competitors are more hence the demand will be elastic in nature. so prices cant be raise, it will decrease total revenue

2 - raise the price to increase the total revenue because of the monopoly of the gas station , the demand will be hence inelastic

3 - iw ill raise the price to increase the total revenue because of the sole provider of electricity and hence inelastic demand

4 - Diamon is a luxury good and hence the demand will be elastic in nature. Hence i will lower the price to increase total revenue