when p decreases by 1% and q increases by 1%, the revenue would\nincrease\nremain unchanged.\ndecrease\nwe…
when p decreases by 1% and q increases by 1%, the revenue would\nincrease\nremain unchanged.\ndecrease\nwe need more information.\nquestion 6\n1 pts\nassume the price elasticity of demand for mc pretzel co. pretzels is 0.8. if the company increases the price of each bag of pretzels, total revenue will:\ndecrease because fewer bags will be sold.\nincrease because the company will be receiving more revenue per bag.\nincrease because the percentage increase in the price is greater than the percentage decrease in the number of bags sold.\nimpossible to predict because we do not know the percentage change in price.
Answer
Explanation:
Step1: Recall revenue formula
Revenue $R = P\times Q$. Let the initial price be $P_1$ and quantity be $Q_1$, so $R_1=P_1\times Q_1$. After the change, $P_2=(1 - 0.01)P_1 = 0.99P_1$ and $Q_2=(1 + 0.01)Q_1=1.01Q_1$. Then $R_2=P_2\times Q_2=0.99P_1\times1.01Q_1=(1 - 0.01)(1 + 0.01)P_1Q_1$.
Step2: Use difference - of - squares formula
$(1 - 0.01)(1 + 0.01)=1-0.01^2= 1-0.0001 = 0.9999$. So $R_2 = 0.9999R_1$, and revenue decreases.
For the second question: The price - elasticity of demand $E_d=\frac{%\text{ change in }Q}{%\text{ change in }P}=0.8$. Since $E_d = 0.8<1$, demand is inelastic. When demand is inelastic, an increase in price leads to an increase in total revenue because the percentage increase in price is greater than the percentage decrease in the quantity demanded.
Answer:
For the first question: decrease For the second question: Increase because the percentage increase in the price is greater than the percentage decrease in the number of bags sold.