Econ Total Revenue and Price Elasticity sales, only, concerning, percentage, quantity

giakhanh39

Hi Guys
I have a question concerning Price Elasticity of demand and Total Revenue
I have read somewhere that: “Total revenue equals price times quantity sold. If prices are reduced to stimulate sales, total revenue will only increase if the percentage increase in demand (sales) is greater than the percentage decrease in prices.”
I think they are thinking in term of price elasticity right ?
% change in price = (P1P0)/(0.5*(P1+P0)) and not = (P1P0)/P0
because if we are speaking about classical %increase definition (like (P1P0)/P0), it’s not working ( a decrease of 19% in price and increase in 20% in quantity using classical % increase and decrease will lead to a decrease in revenues)
Am I wrong ? Tks.

ASSet_MANagemen

Yes. When talking about elasticity, percentage changes are determined using average values as the base.

Zestt

Tks…
So just to double check…
this sentence ” If prices are reduced to stimulate sales, total revenue will only increase if the percentage increase in demand (sales) is greater than the percentage decrease in prices.” is true only because percentage changes are determined using average values as the base?