Question

Demand for a soft book managerial economics text is given by Q = 20,000 – 300P. the book is initially priced at $30.

a. Compute the point price elasticity of demand at P = $30

b. If the objective is to increase total revenue, should the price be increased or decreased? Explain.

Answer 1

a)The point price elasticity of demand at P$=$ $30 is

$Ed=\frac{−300\times30}{11,000}$

$=−0.82$

b) If the objective is to increase total revenue, the price should be increased, because the demand is inelastic.