A gasoline station very near a professional football stadium parks car to make money on game days. Last year it charged $4.00 per car and parked 1,000 cars. This year it raised the parking price to$ 6.00 and parked 800 cars. Calculate the total revenue. Did the station owner make a good economic decision in raising the parking prices from one year to the next? Explain

Total revenue last year = $4 × 1000 = $4000

Total revenue this year = $6 × 800 = $4,800

Yes. It's a good economic decision because demand is inelastic. When demand is inelastic a rise in price would lead to an increase in profits.

Explanation:

Total revenue = price x quantity sold

Total revenue last year = $4 × 1000 = $4000

Total revenue this year = $6 × 800 = $4,800

To determine if raising the parking prices from one year to the next was a good decision, we have to determine the elasticity of demand.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Elasticity of demand = percentage change in quantity demanded/ percentage change in price.

Percentage change in price = (6/4) - 1 = 0.5 = 50%

Elasticity of demand = 20% / 50% = 0.4

Demand is inelastic because the absolute value of elasticity is less than 1. If demand Is inelastic and prices are increased, total revenue rises because the fall in total demand would be less than the rise in price.

I hope my answer helps you

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