A company increases the price of its product from $10 to $12 and observes that total revenue decreases from $100,000 to $90,000. How should the company classify the demand for its product based on this observation?

The company should classify the demand for its product as elastic based on the observation that when the price increased from $10 to $12, the total revenue decreased from $100,000 to $90,000. In elastic demand, a rise in price leads to a larger percentage drop in the quantity sold, which means customers are sensitive to price changes. For example, if the company was selling 10,000 units at the lower price of $10, raising the price to $12 caused enough customers to stop buying the product, reducing total sales and revenue. Since total revenue fell, it shows that the demand does not support higher prices; customers are likely to buy less when the price goes up. This indicates that the company might need to reconsider its pricing strategy to avoid losing more customers.