Dusty Rags, Inc.provides janitorial services to retail stores.Dusty had beencharging $10 per hour and selling 400 hours of service per week at that rate.When he raised his price to $15 per hour, his customers cut back to 300weekly hours of service.Which of the following is true?

Question

Quizplus · Accepted Answer

When Dusty raised the price from $10 to $15 per hour, the quantity demanded decreased from 400 hours per week to 300 hours per week. However, the increase in price resulted in an increase in revenue from $4,000 per week to $4,500 per week. This indicates that the demand for his services is inelastic, meaning that customers are willing to pay more for the service and are not very sensitive to changes in price. If the demand were elastic, an increase in price would lead to a much larger decrease in quantity demanded and the total revenue would decrease.