question archive Which of the following statements best describes how a business determines whether to increase or decrease the price of the product it sells in order to increase revenues? (a) If the price elasticity of demand is greater than 1, total revenue and price changes move in opposite directions
Which of the following statements best describes how a business determines whether to increase or decrease the price of the product it sells in order to increase revenues? (a) If the price elasticity of demand is greater than 1, total revenue and price changes move in opposite directions
Subject:EconomicsPrice:2.88 Bought3
Which of the following statements best describes how a business determines whether to increase or decrease the price of the product it sells in order to increase revenues?
(a) If the price elasticity of demand is greater than 1, total revenue and price changes move in opposite directions.
(b) If the price elasticity of demand is less than 1, total revenue and price changes move in opposite directions.
(c) If the price elasticity of demand is greater than 1, total revenue and price changes move in the same direction.
(d) The price elasticity of demand has little to do with total revenue, and a firm must focus solely on its cost structure to increase revenues.
(e) It will depend on how many firms are competing in the market.
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The correct option is (a) If the price elasticity of demand is greater than 1, total revenue and price changes move in opposite directions.
If the PED is greater than 1, a percentage change in price causes a larger percentage change in demand. So, if the price is increased, the percentage fall in demand will be larger. The increase in revenue from the increased prices will be lower than the decrease in revenue due to the lower demand. This causes an overall negative impact on the total revenue with it falling with increase in prices.
