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The demand curve for your firm's product is linear
The demand curve for your firm's product is linear. Based on recent sales data, you have determined that at the current price, the price elasticity of demand is 5.00.
1. Given this information, we can state that the current price is on the _____ half of the demand curve. (lower or upper)
2. In this case, if you want to increase total revenue, you should _____ your price. (decrease or increase)
3. This result is a move _____ along the demand curve. (upward or downward)
Expert Solution
The linear demand curve will be downward sloping, in the upper half, it will have a higher price point and lower quantity demanded, and with every price decrease, the quantity demanded will increase. The demand in the upper half in the linear demand curve will be elastic, the mid-point is unit elastic, and the lower half will be inelastic.
1. Given this information, we can state that the current price is on the upper half of the demand curve as the price elasticity indicates elastic demand,
2. In this case, if you want to increase total revenue, you should decrease your price.
3. This result is a movement that will be down along the demand curve.
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