Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is inelastic, what is your advice to her?

a. Leave the price at 25 cents and be patient.

b. Raise the price to increase total revenue.

c. Lower the price to increase total revenue.

d. There isn't enough information given to answer this question.

Question

Business

Shania Sosa

22 May, 00:52

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is inelastic, what is your advice to her?

a. Leave the price at 25 cents and be patient.

b. Raise the price to increase total revenue.

c. Lower the price to increase total revenue.

d. There isn't enough information given to answer this question.

+3

Answers (1)

Know the Answer?

Eleanor Martinez · Answer 1

b)

Explanation:

The demand is inelastic means that any change in the price will bring lesser proportionate change in quantity. It means that if she increases price, the quantity demanded will contract but the increase in revenue will far exceed the decrease in quantity demand. She will reach the desired revenue target (50 dollars) in a smaller period of time.