The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to
A)increase the price of good X to raise total revenue.
B)decrease the price of good X to raise total revenue.
C)leave the price of good X unchanged since it will not influence total revenue.
D)increase the price of good X to reduce total revenue.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand for good X is less than 1 (inelastic), increasing the price will raise total revenue because the percentage decrease in quantity demanded will be less than the percentage increase in price.

The Producer of Good X Is Contemplating a Price Change