Question

You can't increase your revenue by reducing the number of your customers. Explain why you agree...

You can't increase your revenue by reducing the number of your customers. Explain why you agree or disagree with this statement. (Assume that the firm's demand curve does not change position.)

Homework Answers

Answer #1

I agree with the statement, because each customer has its own customer lifetime value that goes away when a costumer is lost. A company can increase the price to get higher revenue even if some customers are lost. But, it is only going to happen in the short run, when demand is relatively inelastic in nature. In the long run, customers find the suitable alternatives, adapt to the new conditions and then adjust their demand. So, revenue of the company can decrease in the long run, but lost customers may not come back. Hence, reducing the customers, is not going to increase the revenue.

Even if demand is elastic in nature, then increase in price, will lead to decrease in quantity demanded and it will cause loss of  customers in bigger proportion to the increase in price. So, it will also hurt the revenue generation capacity of the firm.

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