ing producer has determined that the price elasticity of dem

ing producer has determined that the price elasticity of demand for its clohing i 3.2. Based on this information, what should it do to increase total revenue? Select one: O a. decrease price O b. increase price c. keep price the same O d. need more information to answer the question

Solution

Option A.

The price elasticity of demand for clothing is elastic as it is more than 1. Thus, total revenue and price are negatively related to each other. Thus, to increase total revenue from the sale of clothing, the clothing producer should decrease price which will increase quantity demanded by a greater amount than increase in prices and thus total revenue of the firm will increase.