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Price elasticity of demand

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You have recently received a report indicating that the Price elasticity of demand for flat screen LG TV's is -1.6.

1. Explain the steps involved in pricing the television units in order to maximize total revenue. Use diagrams to explain your answer.

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Price elasticity of demand steps are provided.

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The attached picture illustrates the relationship between price elasticity and revenue. Have a look at it before we start.

First, let me state that there are two ways to express elasticity. Some people like to use a negative number, with 0 being perfectly inelastic, -1 being unit elastic and <-1 being elastic (the extreme case, -infinite is perfectly elastic). Others (including myself, and the illustration attached) use a positive number to express elasticity. I use ...

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