Suppose you are in charge of setting prices at a local ice cream shop.The business needs to increase its total revenue,and your job is on the line.You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8.You should
A)increase the price of ice cream.
B)decrease the price of ice cream.
C)decrease the cost of operating the ice cream shop.
D)increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 1.8 means that a 1% increase in price will lead to a 1.8% decrease in quantity demanded. Therefore, to increase total revenue, the price should be decreased, as the increase in quantity demanded will outweigh the decrease in price. Decreasing the cost of operating the shop or increasing the price of bottled water will not necessarily lead to an increase in revenue for the ice cream shop.

Suppose You Are in Charge of Setting Prices at a Local