Answer:
Since the price of peanuts increased by 20% and the price elasticity of demand is 0.8, then the quantity demanded will decrease by 16%.
Since the decrease in quantity demanded is proportionally smaller than the increase in price, then total revenue for farmers not affected by the drought should increase.
E.g. 100 pounds of peanuts sold at $10 per pound, total revenue = $1,000
price increased to $12 (20% increase) and quantity demanded decreased to 84 pounds.
total revenue = $12 x 84 pounds = $1,008
