Final answer:
Increasing the price of an item when demand is inelastic will likely increase total revenues for a business owner, because the decrease in quantity sold is proportionally smaller than the increase in price. D.Having a buy"
Step-by-step explanation:
If demand for an item is inelastic, a business owner could increase total revenues by increasing the price. Price elasticity of demand is the key concept to consider when determining how to adjust prices to maximize revenue. Inelastic demand means that consumers are not highly sensitive to price changes; therefore, a higher price leads to a proportionally smaller decrease in quantity sold. This results in increased total revenue since the loss in revenue from selling fewer units is less than the gain in revenue from increased prices.
For example, if a business sets a higher price for a product and the demand is inelastic, although they sell fewer units, the higher price per unit will compensate for the reduced sales volume, leading to an increase in total revenue. Conversely, if the demand is elastic, increasing the price would lead to a significant drop in quantity sold, which would not be compensated by the higher price, thus decreasing total revenue.
If elasticity is exactly 1, this indicates unitary elasticity, and the total revenue is maximized at the current price. In this case, the business should maintain its current price level because any change in price will not affect the total revenue.