One of the three shops on campus that sell university logo clothing has found that if it sell a sweatshirt for $30 or more, the other two shops keep their prices constant and the store loses revenues If however, the shop reduces its price, what kind of market structure does this store face? if the store's marginal costs fluctuate up and down very slightly, how should the store adjust its prices?
The price elasticity of demand is clearly elastic.
Originally Posted by Celia
If the demand is elastic then an increase in price will result in a decrease in total revenue.
But if the store lowers its price, it will lead to an increase in total revenue.
The store should therefore lower it's prices.