Suppose that Nowhere State University (NSU) seeks to increase its total revenue from tuition paid by students. To do this, NSU decides to increase the tuition it charges to students. In order for this strategy to work, the demand for NSU education must be . Suppose the true price elasticity of demand for NSU education is 1.4. To expand revenue earned by NSU, the university should the tuition it charges students.

Explanation:

The revenue of NSU will rise if only the price elasticity of demand for the courses at NSU is elastic.

This will happens because when a commodity has elastic demand, the increase in its price leads to a rise in consumer’s total expenditure. Revenue will drop if the price elasticity of demand for the courses at NSU is not elastic (inelastic).

This will happen because when a commodity has inelastic demand, increase in its price will lead to reduction in consumer’s total expenditure

Revenue will remain unchanged if the price elasticity of demand for the courses at NSU is unit elastic.

This will happen because when a commodity has unit elastic demand, increase or decrease in price of commodity will not make any change in total firm’s total revenue.

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