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To maximize total revenue, a firm should Decrease its prices if it faces elastic demand, and it should increase its prices if it faces inelastic demand
What is elastic demand?
The price elasticity of demand for a good is a measurement of how sensitive the amount sought is to its price. When the price of a good rises, the amount demanded reduces for almost all of them, but it falls more for some than others.
Price inelasticity is extremely advantageous to organizations and is critical in understanding how to design their pricing strategy. Price inelasticity provides enterprises with greater price freedom because the change in demand is virtually the same whether prices grow or decrease.
Demand elasticity is a measure of how demand responds to price changes. It's normalized, which means that the specific prices and amounts are irrelevant, and everything is regarded as a percentage change. A derivative is used in the formula for demand elasticity.
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