The economy of a certain country has a labor-intensive manufacturing sector. One of its components is the furniture industry, which has many producers and generates a good return on profits. However, global situations cause operating costs to increase and affect this industrial sector, which is very competitive, to a lesser or greater degree. The company A&H Furniture operates in this industry, specializing in rustic furniture, and distributes both to the local and international markets. Given the increase in operating costs and its effects, A&H Furniture considers the following:

• The magnitude of the increase in operating costs over your total income and your profit.
• The increase in sales prices of your furniture for both local and international distribution.
• Adjustments in processes or functional organization charts that allow savings that offset the increase in operating costs.
• The convenience of commercial alliances or subcontracting of professional services.

1. What kind of price elasticity of demand should furniture have? Why?
2. How does this situation affect your total income and earnings?
3. If A&H Furniture decided to increase the price of furniture, how would quantity demanded and the relationship between price elasticity and total revenue be affected, holding all else constant?