Question
Suppose that at a price of
per month, there are 30,000 subscribers to Small Town Streaming Service. If Small Town Streaming Service
raises its price to
per month, the number of subscribers will fall to 20,000 .
At which of the following prices does Small Town Streaming Service earn the greatest total revenue?
a. Either
or
per month because the price elasticity of demand is 1.0
b.
per month
c.
per month
d.
per month
raises its price to
At which of the following prices does Small Town Streaming Service earn the greatest total revenue?
a. Either
b.
c.
d.
Ask by Chang Parry. in the United States
Jan 27,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
At $30 per month, Small Town Streaming Service earns the greatest total revenue.
Solution

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The Deep Dive
To find the price that earns Small Town Streaming Service the greatest total revenue, we first calculate the total revenue at both price points.
At
per month:
Total Revenue = Price × Quantity = .
Total Revenue = Price × Quantity =
At
per month:
Total Revenue = Price × Quantity = .
Total Revenue = Price × Quantity =
The service earns more revenue at
per month, so the answer is b.
per month.
One neat way to visualize this scenario is to think about the “price elasticity of demand.” When the price was increased to
and the number of subscribers dropped, it highlighted a pretty basic principle: as prices rise too steeply, customers tend to walk away, and revenue can fall.
In real life, businesses often need to balance between pricing and the number of customers. For example, many streaming services experiment with introductory offers or discounts to attract more users while maintaining their price points. It’s all about finding that sweet spot where more customers equals more revenue!