Question

How does elasticity affect a company’s pricing policy? If demand is inelastic at the current price, the company knows that an increase in price would reduce total revenues. If demand is elastic at the current price, the company knows that an increase in price would reduce total revenues. If demand is unitary elastic, the company knows that a decrease in price would decrease total revenues. If demand is unitary elastic, the company knows that an increase in price would increase total revenues.

Answer 1

Answer:

If demand is elastic at the current price, the company knows that an increase in price would reduce total revenues.

Explanation:

Price elasticity refers to the measure of a marketplace's reaction when prices are increased or decreased.

Price elasticity of demand - this refers to the behavior of the consumers when the prices of the products or services are changed.

Price elasticity of supply - this refers to the behavior of the suppliers or producers when the prices of the products or services are changed.

So, among the choices above, the answer is "If demand is elastic at the current price, the company knows that an increase in price would reduce total revenues." This is because when demand is elastic, the buyers will respond flexibly to the change in price. So, when the current price is increased, the buyers are flexible enough to lower their demands for the products or services. Items that are not essential to people's everyday lives are deemed to have higher elasticity compared to daily necessities because when their prices increase, people have an easy time not to buy them.

When the demand of the buyers decreases, the total revenues would then decrease as well.