Answer to Question #216898 in Economics for Khwisti

Question

As a Production Manager of a manufacturing firm that produces both an elastic good and an inelastic good, illustrate to a new board of the organisation the relationship between price elasticity of demand and total revenue, and how the elasticity concept can be used to maximise revenues of both commodities? Illustrate your answer using relevant diagrams of elastic and inelastic goods.

Answer 1

If a manufacturing firm that produces both an elastic good and an inelastic good want to increase total revenue, then it should increase price for an inelastic good, and decrease price for an elastic good.