Hello , I need help with my Economics homeowork. Revenue at a major smartphone m

Question

Hello , I need help with my Economics homeowork.

Revenue at a major smartphone manufacturer was $1.4 billion for the nine months ending March 2 , up 77 percent over revenues for the same period last year. Management attributes the increase in revenues to a 115 percent increase in shipments , despite a 33 percent drop in the average blended selling price of its line of phones. Given this information is it surprising that the company's revenue increased when it decreased the average selling price of its phones?

These are the four answers I came up with and I cant figure out which one is correct

No. Own price elasticity is -0.29 which means demand is elastic and a decrease in price will raise revenues

No. Own price elasticity is -3.48 , which means demand is elastic and a decrease in price will raise revenues

Yes. Own price elasticity is -0.20 which means demand is inelastic and a decrease in price will decrease revenues

Yes. Own price elasticity is -3.48 which mean demand is elastic and a decrease in price will decrease revenues

Explanation / Answer

Ans: No. Own price elasticity is -3.48 , which means demand is elastic and a decrease in price will raise revenues

Explanation:

Own price elasticity = 115% / -33% = -3.48

Since the absolute value of Own price elasticity is 3.48 and it is greater than 1, it means demand is elastic.

When demand for a product is elastic, fall in its price leads to increase in total revenue and rise in its price leads to decrease in its total revenue.

Thus, it is not surprising that the company's revenue increased when it decreased the average selling price of its phones.

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