Answered: Describe the relationship between…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter7: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 13CQ: Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a....

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Describe the relationship between elasticity and total revenue when considering an increase in price.

You are the manager of a train company. Recently total sales have been a bit low and you are now considering means to give sales a boost. Market research has shown that currently the price of train tickets is historically low. Market research has also shown that the demand curve for train tickets is downward sloping. You may assume that your company is not a price taker on the market.

One of your colleagues has suggested that it is important to lower the price of train tickets. In that case, she argues, the demand will increase. Do you agree with her? Explain why.
She continues her argument by concluding that if the demand goes up, the total value of sales of train tickets should therefore increase. Do you agree with her? Explain why.

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