A
firm’s revenue is calculated using the following formula:
volume of goods sold ´
average selling price
A
firm wanting to increase its revenue could raise the price or sell more
units. Remember that raising the
price of an elastic good will lead to a reduction in revenue and raising the
price of an inelastic good will lead to an increase in revenue.
Firms
will often adopt one of two approaches:
- Sell at a low price
hoping to attract a high level of sales.
- Sell at a high price
in order to maximise the revenue from the items sold.
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