Question

Compute the price elasticity of demand if price increases from $10 to $12 and quantity demanded falls from 600 to 400. Use the value obtained and a specific example to determine whether price must be increased or decreased to increase total revenue. Explain why. Note: Explain only how to increase total revenue, not decrease it.

Answer 1

E p =((400-600)/600)/((12- 10)/10)=-1.666

Using this particular case that an increase in price, the quantity demanded falls, and a total

income falls, it is to increase its own income should be reduced at this equilibrium price

elasticity of the price.