Table 7-4
The publisher of a magazine gives his staff the following information:
He tells the staff,"Our costs are currently $150,000 more than our revenues each month.I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue.This will result in our revenue being exactly equal to our cost."
-Refer to Table 7-4.Which of the following statements is correct?

Question

Table 7-4
The publisher of a magazine gives his staff the following information:
  He tells the staff,"Our costs are currently $150,000 more than our revenues each month.I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue.This will result in our revenue being exactly equal to our cost."
-Refer to Table 7-4.Which of the following statements is correct?

Quizplus · Accepted Answer

The publisher's analysis is correct only if the demand is perfectly inelastic because in that case, the increase in price will result in no decrease in the quantity demanded, and hence the revenue will increase by the exact amount of the price increase. If the demand is elastic or unit-elastic, the increase in price will result in a decrease in the quantity demanded, and hence the revenue may not increase enough to cover the increase in cost. If the demand is perfectly elastic, the increase in price will result in no quantity demanded, and hence no revenue.

Table 7-4 The Publisher of a Magazine Gives His Staff the Following