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Answer :
Based on the price elasticity of demand of 1.7, it is recommended that Pete lowers the price of his cookies in order to increase his total revenue, because a price decrease would lead to a proportionally larger increase in quantity demanded, resulting in an overall increase in total revenue.
Based on the price-elasticity of demand (Ped = 1.7), Pete should lower the price of his cookies in order to increase his total revenue. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. A value greater than 1 indicates that demand is elastic, meaning that a price increase would result in a proportionally larger decrease in quantity demanded, and vice versa.
In this case, since the price elasticity is 1.7, it suggests that a 1% increase in price would lead to a 1.7% decrease in quantity demanded. Therefore, if Pete lowers the price of his cookies, the percentage increase in quantity demanded would be greater than the percentage decrease in price, resulting in an overall increase in total revenue.
By reducing the price, Pete can attract more customers and encourage them to buy more cookies. This would offset the decrease in price and result in increased total revenue.
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