Assume the demand function for SeatComfy's table chairs is Q = 5,000 - 25P + 4I +10P_A - 15P_T.Moreover,assume that currently P = 10,P_A = 15,I = 500,P_T = 100.Which of the following is true? A)If SeatComfy increases its price by 1 percent,sales as well as total revenues will increase. B)If SeatComfy decreases its price by 1 percent,sales will increase,while total revenues will decrease. C)If SeatComfy increases its price by 1 percent,sales will decrease,while total revenues will increase. D)If SeatComfy increases its price by 1 percent,sales as well as total revenues will decrease.

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Quizplus · Accepted Answer

Given the demand function Q = 5,000 - 25P + 4I + 10P_A - 15P_T and the values P = 10, P_A = 15, I = 500, P_T = 100, we can calculate the effect of a 1% price increase. The negative coefficient of P (-25) in the demand equation indicates that as the price (P) increases, the quantity demanded (Q) decreases, which is a typical characteristic of most demand functions. However, the total revenue, which is the product of price and quantity sold, could still increase if the price elasticity of demand is inelastic. In this scenario, a 1% increase in price leads to a less than 1% decrease in quantity demanded, which means total revenue increases. Therefore, option C is correct because it correctly states that with a price increase, sales (quantity demanded) will decrease, but total revenues will increase due to the inelastic nature of demand within this price range.

Assume the Demand Function for SeatComfy's Table Chairs Is Q