What key decisions does knowing the own price of elasticity of demand help a manager make and show how a monopolist would use it?

The own-price elasticity is the variation of demand by changing the price points of its product. The price and quantity demanded are taken from the demand curve to arrive at the price elasticity number.

The manager will like to understand how much is the impact on quantity demanded by changing the price of its products, and the following would be the scenarios.

• If the price elasticity is greater than one, a small decrease in price will have a higher impact of quantity demanded, and would result in higher total revenue numbers.
• If the price elasticity is less than one, a small increase in price would have a less impact on demand, and the quantity demanded will decrease by a lower margin.
• There can be a scenario in which the decrease in price is an equal increase in quantity demanded, and the total revenue will remain the same at all price points.

The monopolist will have a downward-sloping demand curve, and to optimize its total revenues, the price elasticity of its product will determine the optimum price structure. If its product has an elastic demand, it is better off to decrease his price and increase it for inelastic demand.