Demand Is Elastic: Effect on Total Revenue
For example, for a firm manufacturing keyboards, suppose that the price elasticity of demand is equal to 1.5. This means that a 10% increase in price will reduce the quantity demanded by 15%. In this case, total revenue will fall when there is an increase in price. If the price of a keyboard is raised from $100 to $110, the demand will drop by 15%.In contrast, if the price of the keyboard were to fall by 10% (from $100 to $90), the quantity demanded would rise by 15%. In this case, even though the price is falling, total revenue will rise. If a company faces elastic demand, it will want to lower prices in order to increase total revenue.
Demand Is Inelastic: Effect on Total Revenue
Demand Is Unit Elastic: Effect on Total Revenue
Relationship between the Price Elasticity of Demand and Total Revenue
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