Price Elasticity Guides Revenue Forecasting

Steps:

• Recall price elasticity of demand measures how quantity demanded responds to price changes.
• Link elasticity to total revenue: revenue = price × quantity.
• Analyze scenarios: elastic demand means price increase reduces revenue; inelastic means it increases revenue.
• Match to choices: identify option focused on revenue prediction post-price change.

Why B is correct:

• Price elasticity determines revenue impact via the formula TR = P × Q; if |E_d| > 1 (elastic), raising price decreases TR, aiding forecast decisions.

Why the others are wrong:

• A: Firms calculate elasticity for internal strategy, not government reporting.
• C: Elasticity assesses own demand sensitivity, not direct competitive positioning.
• D: Surveys measure satisfaction, unrelated to elasticity's economic responsiveness focus.

Final answer: B