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Price elasticity of demand is known to be -2.5 and the firm lowers price by 5 percent What is the expected impact on the total revenue of the firm?
Wiki User
∙ 13y ago
Price elasticy is defined as percentage change in quantity divided by the percentage change in price. The relationship is usually negative as you increaes price you can expect less sales.
With price elasticity of -2.5 that means for every one percent increase in price(.01), I expect my quanity sold to decrease by 2.5 percent (.025).
If the firm lowers the price by 5% then I would expect and increase of (5 * .025) = .125 or a 12.5% increase in total revenue.
Remember all else equal.
Wiki User
∙ 13y ago
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How does elasticity of demand influence tax revenue?
Elasticity of demand influenced tax revenues
How to use the concept of price elasticity of demand to maximize revenue?
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand < 1.
What is the relationship between price elasticity of demand and the monopolist's revenue?
marginal revenue is negative where demand is inelastic
How revenue method applied in calculating price elasticity of demand?
abc
Conclusion of price elasticity of demand?
The conclusion of the price of elasticity of demand is the effect of price change based on the revenue it receives. It is based off the demand of the product and the price of the product.
How does elasticity of demand influence tax revenue?
Elasticity of demand influenced tax revenues
How to use the concept of price elasticity of demand to maximize revenue?
Price elasticity of demand is a way to determine marginal revenue. Optimal revenue and, more importantly, optimal profit will occur to the point when marginal revenue = marginal cost, or the price elasticity of demand < 1.
What is the relationship between price elasticity of demand and the monopolist's revenue?
marginal revenue is negative where demand is inelastic
How revenue method applied in calculating price elasticity of demand?
abc
Conclusion of price elasticity of demand?
The conclusion of the price of elasticity of demand is the effect of price change based on the revenue it receives. It is based off the demand of the product and the price of the product.
Does the change in revenue link to the price elasticity of demand in any way?
not really
What is Elasticity of demand in steel industry?
Elasticity of demand in the steel industry is inelastic. The price of steel can fluctuate and the demand will remain constant. As a result, as price moves, revenue will move in the same direction.
What questions is the price elasticity of demand designed to answer?
Price elasticity of demand is used to determine how changes in price will effect total revenue. If demand is elastic(>1) a change in price will result in the opposite change in total revenue.(+P=-TR) When demand is unit elastic(=1) a change in price wont change total revenue. If demand is inelastic a change in price will result in a change in total revenue in the same direction.(+P=+TR)
Why is the concept of price elasticity of demand potentially very uesful to a businss?
It can be used to calculate quantity sold to optimise profit, since the price elasticity of demand, multiplied by revenue, describes the total change in revenue (MR) per unit sold.
Importance of cross elasticity of demand?
Cross elasticity of demand is sometimes written as XED. In business the cross elasticity of demand is important because it will help determine whether or not it is a good move to increase or decrease prices or to substitute one product for another for the purpose of revenue.
How does a change in price on a linear demand curve affect total revenue?
on the linear demand curve, demand is elastic at price above the point of unitary elasticity so a price increase will decrease the total revenue.
What is the total revenue test for elasticity?
I assume that when you say "elasticity," you mean "price elasticity of demand."Raise price a little. If total revenue goes up, you're in the INELASTIC region (where absolute value of elasticity is greater than 1). If it goes down, you're in the ELASTIC region.
