Situation: Three Guys Named Moe, a moving company in Econopolis, is contemplating a price hike. Right now, they charge $20 per hour, but Moe #1 thinks they could get $30. Moe #2 disagrees, saying it will hurt the business. Moe #3, the brains of the outfit, has calculated the price elasticity of demand for their moving services in the range from $20 to $30 and found it to be 0.5. What will be the impact of a price increase on the company’s Total Revenue?
Should they do as Moe#1 suggests and raise the price? Why or why not?
Currently, Three Guys is the only moving company in Econopolis. Moe reads in the paper that several new movers are planning to set up shop there within the next year. After these competing firms move into Econopolis, is the demand for Three Guys’ services likely to be more elastic, less elastic, or the same? Why?