Question

An elderly man selling ice cream cones out of his van would like to raise revenues,...

An elderly man selling ice cream cones out of his van would like to raise revenues, and can he can be somewhat flexible with his prices. The ice cream's price elasticity of demand is 1.75. What should the elderly man do to raise his revenues?

Should he raise the price of the ice cream cones?
Should he lower the price of the ice cream cones?
Should he sell something different?
Should he change the price elasticity?

Business   Economics   
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Homework Answers

Answer #1

Price elasticity of demand is defined as the percentage change in quantity demanded over percentage change in price.

If price elasticity of demand is 1.75 which is greater than 1, then this shows elastic nature of demand of ice cream.

Now if the elderly man wants to increase its revenue, he can lower the price of ice cream cones. Because the demand is elastic, hence if he lowers the price then the demand of ice cream will increase. And in this way, he will be able to raise revenue.

So, option B is correct.

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