Question

For each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly inelastic, or unit elastic. In addition determine what would happen to total revenue if a firm raised it's price in each elasticity range identified.
a.elasticity of demand = 2.5
b." " = 1.0
c. " " = 0.8

Answer 1

Answer:

a. Elastic, decrease

b. Unit elastic, remain same

c. Inelastic, increase

Explanation:

a. The demand here is elastic as it is more than 1. This implies that an increase in price will cause the quantity demanded to decrease more than proportionate. This will cause total revenue to decrease.  

b. The demand here is unit elastic as it is equal to 1. This means that an increase in price will cause the quantity demanded to decrease by the same proportion. As a result, the total revenue will remain the same.  

c. The demand here is inelastic as it is less than 1. This means that an increase in the price will cause the quantity demanded to decrease by less than proportionate. As a result, the total revenue will increase.