Question

True - Total revenue is increased if the price of a good that has elastic demand is dropped, because people will switch to Colgate. A drop in price of a good that has elastic demand increases its sales and, therefore, its total revenue.

Answer 1

Total revenue increases when the price of a good with elastic demand is reduced, as the increased quantity sold offsets the drop in price. With inelastic demand, raising prices can increase total revenue due to the smaller proportional decrease in quantity. Unitary elasticity means revenue remains constant with moderate price changes.

Step-by-step explanation:

True, total revenue increases if the price of a good with elastic demand is decreased. This is because a drop in price leads to a proportionally larger increase in sales volume, resulting in greater total revenue. For example, if a band considers a specific ticket price that leads to a certain level of sales, they can use the concept of price elasticity of demand to decide whether to change the price. If demand is elastic, reducing the ticket price will cause total revenue to rise due to an increased number of tickets sold. Conversely, if demand is inelastic, raising the price would lead to higher total revenue as the quantity sold decreases by a smaller percentage than the increase in price. In the case of unitary elasticity, any moderate change in price is offset by a proportional change in quantity, meaning revenue remains constant whether the price is moderately increased or decreased.