12- PED and Total Revenue

Question 1

PED use for total revenue

Answer 1

Pricing decisions to increase total revenue

Question 2

Total revenue equation

Answer 2

Price x quantity

Question 3

Relationship between PED, prices change and Total revenue

Answer 3

Elastic , opposite
Inelastic, same

If price is elastic , an increase in price would cause total revenue to fall and vice versa. Because increase in price would lead to a big fall in quantity demanded

If price is inelastic, an increase in price would increase total revenue and vice versa. Price rise will cause only a small quantity demanded fall

Question 4

Elasticity along the demand curve

Answer 4

The top half of the demand curve is price elastic as the % change in quantity demanded is greater than price

The middle of the demand curve is unitary elastic. It equals 1

The bottom half is demand inelastic as the % change in price is greater than change in quantity demanded

Question 5

Where on the demand curve to firms want to be to maximise total revenue?

Answer 5

In the middle where demand is unit elastic (=1)