Question

If a firm finds that it can generate 10,000 of revenue when the price of the good it sells is6 per unit and 8,000 of revenue when the price of the good it sells is5 per unit, then:?

1) i. the demand for the good will be greater at the lower price than the higher price
2) ii. the demand for the good is elastic in the $5-$6 price range
3) iii. the demand for the good is inelastic in the $5-$6 price range
4) iv. the demand for the good is unit elastic in the $5-$6 price range

Answer 1

The demand for the good in question is elastic in the $5-$6 price range because the total revenue decreases as price increases, indicating that quantity demanded reacts strongly to price changes.

Step-by-step explanation:

If a firm finds that it can generate $10,000 of revenue when the price of the goods it sells is $6 per unit and $8,000 of revenue when the price is $5 per unit, we can draw several conclusions:

• The demand for the good will likely be greater at the lower price than at the higher price due to the nature of demand being inversely related to price.
• The demand for the good is elastic in the $5-$6 price range because a decrease in price leads to a proportionally larger increase in quantity demanded, evidenced by the revenue drop when the price moves from $5 to $6.
• Since elasticity measures the responsiveness of quantity demanded to a change in price, a good with an elasticity greater than 1 in a certain price range is considered elastic, thus negating option iii.
• The good is not unit elastic because that would require the total revenue to remain constant when the price changes, which is not the case here.