Projected Effects of Different Prices onSalesIncreased Price or Increased Sales? Anincrease in the price of an item may notproduce an increase in sales revenue.Price per Itemx Quantity SoldSales Revenue$50200$10,000$45250$11,250$40280$11,200$35325$11,375$30400$12,000$25500$12,500Explain why an increase in price does notalways mean an increase in revenue.

Answered: Projected Effects of Different Prices…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Projected Effects of Different Prices on
Sales
Increased Price or Increased Sales? An
increase in the price of an item may not
produce an increase in sales revenue.
Price per Item
x Quantity Sold
Sales Revenue
$50
200
$10,000
$45
250
$11,250
$40
280
$11,200
$35
325
$11,375
$30
400
$12,000
$25
500
$12,500
Explain why an increase in price does not
always mean an increase in revenue.

Expert Solution

Step 1

Answer:

The change in price and change in total revenue is dependent on the price elasticity of demand. If the price elasticity of demand is less than one (inelastic demand) then due to an increase in price the total revenue will increase and vice-versa.

If the price elasticity of demand is more than one (elastic demand) then due to an increase in the price the total revenue will decrease and vice-versa.

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