You are the director of pricing for WalMart, your head economist has informed you that after extensive econometric studies, she has determined that
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You are the director of pricing for WalMart, your head economist has informed you that after extensive econometric

studies, she has determined that your price elasticity of demand for grocery goods is - 1.1. She also informs you that she believes that this demand curve is linear and fairly stable. As a result of this information you will advise the board of directors that Wal-Mart policy of continued price reductions for the next year or so will lead to

a. Total revenues decreasing in the short run and the long run if demand remains stable.

b. Total revenues increasing regardless of the amount that you cut prices because demand is stable. 

c. Total revenues increasing in the long run as the demand curve shifts to the left.

d. Your total revenues could increase or decrease depending on where the price decrease puts you on your demand curve and the value of the elasticity coefficient at that point assuming the demand curve does not shift and remains stable.   

e. None of the above

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