Question

21. An industry is operating at a point on the demand curve where consumers are purchasing 600 units. We are told that the elasticity of demand, expressed as a positive number, is 1/3. The industry hires us as a consultant, and asks us to figure out the impact on the revenue collected by the industry when the price is raised by 10 cents. When we get home, we realize that we have not been told the current price (but we do know that it is a lot more than 10 cents, so that the proposed price increase is a small fraction of the current price). Can we still work out the effect on revenue, and if so what is it? A) yes, revenue will rise by approximately $2 B) yes, revenue will rise by approximately $4 C) yes, revenue will rise by approximately $20 D) yes, revenue will rise by approximately $40 E) yes, revenue will rise by approximately $200 F) yes, revenue will rise by approximately $400 G) yes, revenue will fall by approximately $2 H) yes, revenue will fall by approximately $4 I) yes, revenue will fall by approximately $20 J) yes, revenue will fall by approximately $40 K) yes, revenue will fall by approximately $200 L) yes, revenue will fall by approximately $400 M) we cannot work out the effect on revenue, but we do know that revenue will rise N) we cannot work out the effect on revenue, but we do know that revenue will fall O) we cannot work out the effect on revenue, but we do know that revenue will remain fixed P) we cannot work out the effect on revenue unless we also know the elasticity of supply Q) we cannot work out the effect on revenue unless we know the current price