Question

suppose a seller of a textile cloth wants to lower the price of its clothes from 150rupees per metre to 142.50 per metre. if it's present selles are 2000 miter per month and further it is estimated that ep=
0.7.
1) calculate new total revenue earn by the seller.
2) whether or not is total revenue will increase as result of its decision to lower the price​

Answer 1

Answer:

1) 1835.32

2) no

Explanation:

Answer 2

Answer :

1. New Total Revenue = 26,787.50 rupees

2. The decrease in revenue is due to the decrease in the price of the cloth, which leads to an increase in the quantity demanded but not enough to compensate for the decrease in price.

Explanation :

1. To calculate the new total revenue earned by the seller, we need to use the price elasticity of demand (ep) formula: ep = (% change in quantity demanded)/(% change in price)

From the given information, we know that the price is being lowered from 150 rupees per meter to 142.50 rupees per meter, which is a decrease of 5%. Therefore, using the formula, we can calculate the new quantity demanded as:

New Quantity Demanded = 2000 meters * (1 - 0.7*(5/100))

= 2000 meters * 0.935

= 1870 meters

To find the new total revenue, we need to multiply the new quantity demanded by the new price:

New Total Revenue = 1870 meters * 142.5 rupees per meter

= 26,787.50 rupees

2. The total revenue will decrease as a result of the decision to lower the price. This can be seen by comparing the old total revenue (150 rupees per meter * 2000 meters = 300,000 rupees) to the new total revenue (142.5 rupees per meter * 1870 meters = 26,787.50 rupees)

The decrease in revenue is due to the decrease in the price of the cloth, which leads to an increase in the quantity demanded but not enough to compensate for the decrease in price.

In general, elasticity of demand is the measure of how responsive the quantity demanded is to a change in price. If the elasticity of demand is greater than 1, it is considered elastic, which means that the quantity demanded changes more than the price, and the revenue will decrease if the price is lowered. If the elasticity of demand is less than 1, it is considered inelastic, which means that the quantity demanded changes less than the price, and the revenue will increase if the price is lowered.

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