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How does elasticity affect a company's pricing policy?

A. If demand is elastic at the current price, the company knows that an increase in price will decrease total revenue.
B. If demand is inelastic at the current price, the company knows that an increase in price will increase total revenue.
C. If demand is unitary elastic, the company knows that a decrease in price will not change total revenue.
D. If demand is unitary elastic, the company knows that an increase in price will not change total revenue.



Answer :

GinnyAnswer

Final answer:

Elasticity affects a company's pricing strategy based on demand responsiveness, influencing revenue outcomes.


Explanation:

Elasticity plays a crucial role in a company's pricing policy. If demand is elastic at the current price, lowering the price can lead to an increase in total revenue due to the higher quantity sold. Conversely, if demand is inelastic at the current price, increasing the price might result in higher total revenue despite selling fewer units. When demand is unitary elastic, total revenue is already optimized, so maintaining the current price level is advisable.


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