Understanding Demand Elasticity and Revenue

Answered using GPT-4o mini by AI Answer Generator

Question:

If the elasticity of demand for a good is estimated to be _____, then firms producing the good will experience an increase in total revenue if prices fall.

0.75

2.5

0.05

1

Answer:

If the elasticity of demand for a good is estimated to be greater than 1 (elastic), then firms producing the good will experience an increase in total revenue if prices fall.

In this case, the elasticity values provided are:

  • 0.75 (inelastic)
  • 2.5 (elastic)
  • 0.05 (inelastic)
  • 1 (unit elastic)

Since 2.5 is greater than 1, if the elasticity of demand is 2.5, then firms will experience an increase in total revenue if prices fall.

So