Question

Tracey sells 100 gourmet cupcakes per day at $2 each. She is considering raising her price to $2.50 per cupcake in order to increase her revenues. If the price elasticity of demand for Tracey's cupcakes is 2, would she increase her revenues?

Answer 1

Answer:

no, revenues would fall because she far fewer cupcakes.

Explanation:

given data

sells Q = 100

cupcakes per day P = $2 each

raising price P' = $2.50

price elasticity of demand e =  2

solution

when here e > 1, price and TR move in opposite direction.

when  price is increase to $2.5,TR falls

when Q falls more than rise in P

so here no, revenues would fall because she far fewer cupcakes.