Question

Maria owns a business selling gourmet popcorn. She currently sells her popcorn for $22 but thinks...

Maria owns a business selling gourmet popcorn. She currently sells her popcorn for $22 but thinks that
she may be able to increase her total revenue by raising her prices.
a. Given the market demand schedule below, calculate Maria’s total revenue and the elasticity at each
price point.
Price Quantity Demanded Total Revenue Elasticity
22 6
21 8
20 10
19 12
18 14
b. At $22 is demand price elastic or price inelastic?
c. Will raising her prices lead to an increase in total revenue? Why or why not?

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Answer #1

a)

Price Quantity Total Revenue Elasticity
22 6 132 7.33
21 8 168 5.25
20 10 200 4
19 12 228 3.17
18 14 252

2.57

b) at the price of $22 the demand is price elastic because it is greater than 1.

c) raising her price will not lead to an increase in the total revenue as the demand is price elastic. If the price is raised then the decrease in the quantity would be greater than the increase in the price and therefore, the total revenue will decrease.

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