The owner of a small chain of gasoline stations in a large Midwestern town read

Question

The owner of a small chain of gasoline stations in a large Midwestern town read an article in a trade publication stating that the own- price elasticity of demand for gasoline in the United States is-0.2. Because of this highly inelastic demand in the United States, he is thinking about raising prices to increase revenues and profits. Do you recommend this strategy based on the information he has obtained? No-the elasticity of demand for his gas stations is likely much higher (in absolute value) than-0.2. ONo-since his elasticity is-0.2, a price increase will lower revenues Yes-since his elasticity is -0.2, a price increase will raise revenues. Yes-the elasticity of demand for his gas stations is likely lower (in absolute value) than-0.2

Explanation / Answer

Yes, as the demand is inelastic an increase in prices will increase revenue. Whatever will be the price, the demand will inelastic so any increase of prices will bring in more revenues.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.