Question

Big winner is debating decreasing the price of its rooms to $175 per night. under the initial demand conditions, you can see that this would cause its total revenue to decrease . decreasing the price will always have this effect on revenue when big winner is operating on theelastic portion of its demand curve.

Answer 1

total revenue is by definition the product of price and quantity. TR = PxQ If decreasing the price decreases the revenue, it means that the quantity demanded responded to the price change by less than the change in price. Prince decreases, Q increases but it does not increase as much as the decrease in price. Therefore the total revenue decreases. Decreasing the price will always have this effect on total revenue if Big winner operates on the INELASTIC portion of its demand curve