Wonder-Time, Inc. manufactures high priced gold plated wrist watches. Wonder-Time is considering lowering the price of its watches from the current $800 per unit to $700 per unit. Wonder-Time currently sells 5,000 units per year. The firm's staff economist believes the price elasticity of demand to be -2.5 over this price range.
a. If Wonder-Time lowers the price, will the total revenue increase, decrease or remain unchanged? Why?
b. If Wonder-Time lowers the price, what will be the new level of quantity demanded? Of new total revenue?

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The Answer of Wonder-Time, Inc. manufactures high priced gold plated wrist watches. Wonder-Time is considering lowering the price of its watches from the current $800 per unit to $700 per unit. Wonder-Time currently sells 5,000 units per year. The firm's staff economist believes the price elasticity of demand to be -2.5 over this price range.
a. If Wonder-Time lowers the price, will the total revenue increase, decrease or remain unchanged? Why?
b. If Wonder-Time lowers the price, what will be the new level of quantity demanded? Of new total revenue?