Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Elastic; the company should consider lowering prices to increase total revenue.
B
Inelastic; the company can raise prices further to increase total revenue.
C
Unit elastic; the company should maintain current prices to stabilize sales.
D
Perfectly inelastic; the company can raise prices without affecting sales.
Understanding the Answer
Let's break down why this is correct
Answer
The drop in sales after the price increase suggests that the demand for the product is elastic. This means that consumers are sensitive to changes in price; when the price goes up, they buy significantly less. For the company, this indicates that raising prices might not be a good strategy since it can lead to a decrease in overall revenue. For example, if a coffee shop raises the price of its coffee, and many customers choose to buy less or switch to a cheaper option, the shop might earn less money than before. Therefore, the company should consider keeping prices stable or even lowering them to attract more customers and boost sales.
Detailed Explanation
When demand is elastic, a small price increase leads to a big drop in sales. Other options are incorrect because This option suggests that customers will keep buying even if prices go up; Unit elastic means that price changes do not affect total revenue.
Key Concepts
types of elasticity (elastic
inelastic
implications for businesses
Topic
Understanding Demand Elasticity
Difficulty
hard level question
Cognitive Level
understand
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