Question

Suppose that over a range of prices, the price elasticity of demand varies from $15.0$ to $2.5$. Over another range of prices, the price elasticity of demand varies from $1.5$ to $0.75$. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?

Short answer

Decline in the price would tend to raise the revenue in terms of elastic demand whereas reduction in price would lead to reduce total revenue.

Step-by-step solution

Introduction

When the price elasticity of demand ranges between $15.0$and $2.5$, total revenue can be raised by lowering the price. Producers can increase their profits by lowering the price in the case of elastic demand.

If the price elasticity of demand fluctuates from $1.5$to $0.75$, increasing the price will maximize overall income. The overall revenue curve will climb as the price rises. Along the whole revenue curve, there will be an upward trend.

Explanation

In terms of elastic demand, a decrease in price would tend to increase revenue, whereas a decrease in price would result in a decrease in total income.