A liberal arts college in New Hampshire recently determined that the price elasticity of demand for attending their school is │ED│= 1.33. The administration is considering a tuition change to help balance their budget. The best revenue-maximizing strategy is toA. decrease tuition, which should boost enrollment and increase revenue.B. leave tuition as it is, changing tuition would not help the budget.C. increase tuition, which would generate more revenue.D. do nothing based on this information. Information regarding elasticity is not relevant when making decisions that affect revenue.

Price elasticity of demand is a concept that seeks to measure the sensitivity of demand to the price of a good or service. Thus, if demand is elastic, it means that even small variations in price have a strong impact on demand. Conversely, if demand is inelastic, variations in the price of the good will not greatly affect demand, meaning consumers will continue to demand that particular good or service.

Demand elasticity is measured using a formula that calculates the change in quantity demanded divided by the price change. When the value is less than 1, demand is said to be inelastic, that is, little price sensitive. Conversely, when demand is greater than 1, demand is said to be elastic, ie very price sensitive.

In this case, the demand for enrollment is elastic. Thus, if price increases demand will fall sharply. Conversely, if the price goes down, demand could rise considerably. Therefore, the best way is to lower the tuition price to increase the number of students and consequently increase the revenue.