Anna X. answered • 01/23/21
Over 10 years of experience Economics teacher
Hi, Farak. Inorder to solve this questino we need use two concepts . One is the concept of caculate the revenue and the other one is the price elasticity of demand. The first one is very straigtforward , the total revenue= Price*Quantity demanded, which represents how much money you earned by selling the products. So the change of total revenue will be the change of price +the change of quantity demanded. Now we know there is increase change of quantity demanded 28%, so the rest will be how much change of the price in order to get the change of the total revenue. So what connects this two changes? That will be the price elasticity of demand which measures how much percentage change of quantity demanded respond to one percent change of price which is formulated as %change in Qd/%change in P=price elasticity of demand =-1.4 in your question. So we plug in the number we know about percentage change of quantity demanded 28%/%change in P=-1.4, then %change in P=28%/-1.4=-20%, So now we can finalize the question by using 28%+(-20%)=8% for total revenue change. Hope it helps.
