ECO 550 Week 2 Problem Set

.       Price elasticity of demand is known to be -0.5, and the firm raises prices by 10 percent.

 This is an inelastic demand. If prices are raised by 10 percent then total revenue is raised.  In an inelastic price demand prices and total revenue are proportional.

 

b.      Price elasticity of demand is known to be -2.5, and the firm lowers price by 5 percent.

                   This is an inelastic demand. If prices are lowered by 5 percent then the total revenue                       will decrease also because price and total revenue are proportional.

                       

c.       Price elasticity of demand is known to be -1.0, and the firm raises price by 1 percent.

 This is an inelastic demand. If prices are raised by 1 percent then total revenue is raised.  In an inelastic price demand prices and total revenue are proportional.

 
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