If you were hired as a consultant to increase Revenue for a

If you were hired as a consultant to increase Revenue for a shoe retail store, what would you do (Choose answer below) and explain why

a. Decrease costs across the board

b. Find out the elasticities of the products and increase the price on the inelastic shoes

c. Find out the elasticities of the products and increase the price on the elastic shoes Increase the price on all shoes

I think the answers is b.Find out the elasticities of the products and increase the price on the inelastic shoes, but I\'m not sure of the reasoning I know the answer is NOT c. because my teacher said so.

Solution

Right answer is (b)

Elasticity of demand is used by the producer or manager to decide whether to increase price of product or not. if demand is inelastic, then it would be profitable for producer to increase price of product. Inelastic demand implies that there would not be commensurate fall in demand if there is rise in price of product. Hence, when price is increased, demand does not fall in proportion, hence overall revenue of firm witnesses rise.