Bob opened a new restaurant featuring "Crab Legs à la Bob." As he experimented with the price of the offering, he found that no matter if he raised or lowered his price, the total revenue from the "Crab Legs à la Bob" stayed the same. He could conclude that his product had what kind of elasticity?
A. He can draw no conclusions from the information given.
B. His demand is elastic.
C. His demand is inelastic.
D. He has a situation where there is unitary elasticity.
Answer: (D) Bob would find himself in a situation with unitary elasticity. When raising or lowering the price of your product has no effect on total revenue, the situation is said to have unitary elasticity of demand. (A) is wrong because Bob can make a conclusion about demand. (B) is also incorrect because if the demand were elastic, when the price was dropped, total revenues would increase, and when the price was raised, total revenues would decrease. (C) is also wrong because if it were inelastic, when Bob tried to lower his price, he would find that his total revenue would also be lower, yet if he raised his price, his total revenue would increase. With the information given, we don't know whether he should sell shrimp (E).
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