A mobile (cell) phone operator increases the price of making calls on its network. After the price increase, the revenue of the mobile phone operator falls by 10%. What is the price elasticity of demand (PED) for the mobile operators service?

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A mobile (cell) phone operator increases the price of making calls on its network. After the price increase, the revenue of the mobile phone operator falls by 10%. What is the price elasticity of demand (PED) for the mobile operator’s service?

A	elastic
B	inelastic
C	perfectly elastic
D	unit elastic

Explanation:

Detailed explanation-1: -A price increase will therefore increase total revenue while a price decrease will decrease total revenue. Finally, when the percentage change in quantity demanded is equal to the percentage change in price, demand is said to be unit elastic.

Detailed explanation-2: -An increase in the price will decrease the total revenue and a decrease in price will increase the total revenue.

Detailed explanation-3: -In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded.

Detailed explanation-4: -The effect of a price hike on total revenue depends on the elasticity of demand. If the demand is elastic, then total revenue will decrease because the decrease in the quantity demanded will outweigh the effect of the higher price. If the demand is inelastic, then total revenue will increase.

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

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