Question

Table 6-4 The publisher of a magazine gives his staff the following information: Current price Current sales Current revenue Current total costs $2.00 per issue 150,000 copies per month $300,000 per month $450,000 per month He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate th problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equ. cost." 13 13) Refer to Table 6-4. Which of the following statements is correct? A) The publisher's analysis is correct only if the demand is elastic. B) The publisher's analysis is correct only if the demand is perfectly elastic. C) The publisher's analysis is correct only if the demand is perfectly inelastic. D) The publisher's analysis is correct only if the demand is unit elastic.

Answer 1

Answer is that demand is perfectly inelastic which means whatever the price is the quantity remains the same and here if the price increases to $3, then it means $1 is increased and increase in revenue = $1*number of copies

= $1*150,000 = $150,000 .

Therefore (C) is the answer to this question