Question

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:a. this is impossible since this would violate the law of demand.b. the demand for Pete's muffins in this range is price inelastic.c. the demand for Pete's muffins in this range is unit elastic.d. the demand for Pete's muffins in this range is price elastic.e. the percentage change in quantity demanded must exceed the percentage change in product price.

Answer 1

The correct option is C

Step-by-step explanation:

Provided rise in price increases the revenue from muffin.

That is by $35,000 to $38,000

Rates per muffin = $2 to $3 revised.

Demand at price of $2 = $35,000/$2 = 17,500 units

Demand at price of $3 = $38,000/$3 = 12,667 units approximately

Thus, with increase in price the demand gets to fall in number, though the revenue has increased.

Since the price is increasing by $1 per unit, thus the range is unit elastic.

The correct statement is C