A Financial Planning business is considering raising the price of advice from $120 to $150.

Price: $120, Quantity demanded 12,000 units.

Price $150, Quantity demanded 8,000 units.

a) Use the total revenue method to determine the impact on revenue to this business. eg

P x Q = R

P₁ x Q₁ = R₁

b) Using the mid-point formula calculate the price elasticity of demand using the same information. Show all your workings.

Price Elasticity of Demand = % change in Quantity Demanded

% change in Price

c)Is demand in the above example elastic or inelastic? Was this a good decision?

d)How would this impact on the organisational value and capital structure of this financial planning business?