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Essay text:
If Elasticity is less than one (1), demand for the product is relatively inelastic. Since quantity demanded reacts at a minimum to a change in price, a price increase would actually work in increasing total revenue. A revised computation of the previous example can illustrate this effect.
Price (Px) Quantity Demanded (Qx) Total Revenue (Px X Qx)
P6/slice 10 slices P60
P10/slice 8 slices P80
Price Elasticity = (10-8)/(10+8) = .44
(10-6)/(10+6)
The increase in price, which is 67% overweighed the decrease in quantity demanded of 20% resulting to a 33% increase in total revenue.
c. For an Elasticity of greater than one (1) or when the change in price corresponds to greater change in quantity demanded, a price reduction would be most appropriate to increase total revenue...
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