Suppose that the seller decrease Price for his/her good by5 percent.Discuss how total revenue changes when 1) ed=0.3 2) end =1 3). ed =1.5
Solution
When Ed=0.3, percentage change in quantity will slightly increase by
,
So total revenue will increase by
when Ed=1, total revenue will increase by
when prices decrease by the said percentage.
when Ed=1.5, total revenue will increase by
Since an elasticity of demand above 1 shows customers react more to changes in price.
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