If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could change price a little bit and observe what happens to total revenue. not do anything as there is no way to find an elasticity value. survey competitors and ask them what they think demand elasticity is for the product. talk to its customers.

Answered: If a firm wanted to know whether the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could

		change price a little bit and observe what happens to total revenue.
		not do anything as there is no way to find an elasticity value.
		survey competitors and ask them what they think demand elasticity is for the product.
		talk to its customers.

Expert Solution

Step 1

Elasticity and revenue are related.

If a good has low elasticity, an increase in price increases total revenue

If the good has high elasticity, a decrease in price increases total revenue

If the good has high elasticity, an increase in price decreases total revenue

If the good has a unit elasticity, total revenue does not change with a change in price.

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