Question

How does elasticity affect a company's pricing policy?

A If demand is elastic at the current price, the company knows that an
increase in price would reduce total revenues.

B If demand is inelastic at the current price, the company knows that an
increase in price would reduce total revenues.

C If demand is unitary elastic, the company knows that a decrease in
price would decrease total revenues.

D If demand is unitary elastic, the company knows that an increase in
price would increase total revenues.

Answer 1

A. If demand is elastic at the current price, the company knows that an increase in price would reduce total revenues.

Step-by-step explanation:

Elasticity refers to the change in the consumer's demand or the supplier's ability to produce depending on the change in the price of a commodity or the income.

When the demand is elastic, people are able to change or adapt their demands immediately. So, this means that if the price of a commodity will be increased, the people will not purchase that much on that commodity. This will then affect the total revenue of the company. Due to low demand for the product, the total revenue will decrease.