Raising Prices Affects Revenue
How do rises in prices affect Revenue?
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How Does Raising Prices Affect Revenue?
Revenue regards the total value received from selling a good or service. Total revenue is price times the quantity of goods sold.
If demand for the good or service is elastic at a given price level the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue.
However, if demand for the good or service is inelastic at that original quantity level, a certain percentage increase in price will result in a smaller percentage decrease in the quantity sold—and total revenue will rise.
If demand for the service or good has a unitary elasticity at that quantity, then an equal percentage change in quantity will offset a moderate percentage change in the price.