Your Natick Mall Boutique was planning for revenue to be $200,000 next month, but your store's manager decided to decrease prices by an average of 8%

Economics Jan 19, 2021

Your Natick Mall Boutique was planning for revenue to be $200,000 next month, but your store's manager decided to decrease prices by an average of 8%. Your consultants tell you this price change will likely create a 10% increase in quantity demanded. Select all the true statements.

A) Total revenue is likely to go down relative to the plan.

B) Total revenue will likely go up relative to the plan

C) Price elasticity is -1.25

Expert Solution

The correct answers are:

B) Total revenue will likely go up relative to the plan

C) Price elasticity is -1.25

The price elasticity of demand is calculated as:

If the store manager decreases the price by 8% on average and as a result, the quantity demanded increases by 10%, then the price elasticity of demand is equal to:

Because the demand is elastic, the decrease in price will likely increase the firm's total revenue.ua

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