Question

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

a. decrease the price of ice cream.
b. decrease the cost of operating the ice cream shop.
c. increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2.
d. increase the price of ice cream.

Answer 1

Answer: Decrease the price of ice cream.

Step-by-step explanation:

Since the elasticity is grater than one a decrease in price will lead to a greater change in demand and invariably more revenue.