Revenue and Elasticity of Demand
1. Note that Elasticity when is small.
Loss due to the lower demand is the part of the gold area outside the blue region.
Gain due to the higher price is the part of the blue area outside the gold region.
1. When Elasticity<1, what is the effect of a small price change on the revenue? What is larger in this case: the Gain due to the higher price or the Loss due to the lower demand?
2. Move the point to make Elasticity > 1 . What is the effect of a small price change on the revenue?
2. Move the point to make Elasticity=1 . What is the effect of a small price change on the revenue?