Math Equation Problems

Question

When the demand is elastic, in order to increase the revenue

When the demand is inelastic, in order to increase the revenue

When the demand is unit elastic

When the elasticity is a negative number

A. the price should be increased.

B. the revenue cannot be increased any further.

C. the profit is maximized

D. the price should be decreased.

E. the cost is maximized

F. You know you made a mistake in your calculations.

Answer 1

when demand is elastic, the price should be decreased to increase revenue

when demand is inelastic, the price should be increased to increase revenue

when demand is unit elastic, revenue cannot be increased further

when the elasticity is a negative number, it's usually reported as the absolute value of the negative number, because elasticity of demand is assumed to be negative, so there is no need to mention the negative sign.

Demand curves are downward sloping (except for the rare "Giffen good"), and downward sloping demand curves have negative elasticity. In the rare case where an increase in price leads to more quantity sold, it's called a "Giffen good" Major example is potato demand in Ireland during the famous potato famine. People were so poor they spend more money and bought more potatoes as the potato price rose. The income effect rarely outweighs the substitution effect. If the price rises, people buy less and substitute alternative purchases. Unless the income effect outweighs the substitution effect, in rare situations

C) and E) are incorrect and irrelevant, unless you have more information about costs or profits. Demand and demand elasticity only has information about revenue, price and quantity purchased. It says nothing about costs or profits.