Chapter 19, Problem 8P

To determine

Suppose that over a range of prices, the price elasticity of demand varies from 15.0 to 2.5 over another range of prices, the price elasticity of demand varies from 1.5 to 0.75. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?

Concept Introduction:

Price Elasticity of Demand and Total Revenue of a Firm:

1. Price elasticity of demand is inelastic $(e_d<1)$ ): When a firm increases its product prices, and total revenue also rises.
2. Price elasticity of demand is elastic $(e_d>1)$ : When a firm lowers its price, and the total revenue increases or when a firm increases its product prices, the total revenue falls.
3. Price elasticity of demand is unit elastic $e_d$ (=: When a firm increases or decreases its product prices, the total revenue remains same.

Total Revenue: It can be defined as the total amount received by a firm after selling the products. It can be calculated as:

Total Revenue = Price x Quantity