Final answer:
Peak-load pricing is a pricing strategy where prices are raised during high demand periods to increase revenue. It is based on the price elasticity of demand, where businesses can adjust prices according to the anticipated change in sold quantities and total revenue.
Step-by-step explanation:
Peak-load pricing is a strategy used in various businesses, including the agricultural sector and entertainment industry, where companies charge higher prices during periods of maximum demand. The concept relies on price elasticity of demand, which measures how sensitive the quantity demanded is to a price change.
If demand is elastic, lowering prices might lead to an increase in total revenue due to a larger increase in sales volume. Conversely, with inelastic demand, raising prices can lead to higher revenue since the decrease in quantities sold is proportionally less. For example, if a band observes that demand for their concert tickets is inelastic, they could implement peak-load pricing by raising the ticket prices, anticipating that even though fewer tickets will be sold, the total revenue will increase due to a higher profit margin per ticket.