Question

University of TN has a tuition price elasticity of 0.85. Harvard has a tuition price elasticity of 3.1. Both Universities want to increase tuition revenues. Which University should raise its tuition price and which University should lower its tuition price, and why?

Answer 1

University of TN has a tuition price elasticity of 0.85, so the demand for its tuition is inelastic. Harvard has a tuition price elasticity of 3.1, so the demand for its tuition is elastic. If both Universities want to increase tuition revenues, then University of TN should raise its tuition price and Harvard should lower its tuition price, because to increase total revenue we should rise the price for inelastic demand and lower the price for elastic demand.