If the demand for a product of the firm happens to be relatively elastic,
then any attempt on the part of the firm to raise the price of its product
will bring about a fall in its total revenue. *
True
False
Answers
Answered by
1
Explanation:
When demand is inelastic – a rise in price leads to a rise in total revenue – a 20% rise in price might cause demand to contract by only 5% (Ped = -0.25)
When demand is elastic – a fall in price leads to a rise in total revenue - for example a 10% fall in price might cause demand to expand by only 25% (Ped = +2.5)
When demand is perfectly inelastic (i.e. Ped = zero), a given price change will result in the same revenue change, e.g. a 5 % increase in a firm's prices results in a 5 % increase in its total revenue
Similar questions