5. When a product price is elastic does a drop in price result in

an increase or decrease in earnings?

Answer: Change in the market What happens to total revenue?

Ped is unit elastic (=1) and a firm raises price Total revenue remains the same

Ped is - 1.5 (elastic) and the firm raises price by 4% Total revenue decreases

Ped is - 0.4 (inelastic) and the firm raises price by 30% Total revenue increases