Day: October 6, 2021

Alex is the owner of a hat shop called Alex’s Hats.

His main objective is to increase sales revenue. 

Which one of the following options is most likely to achieve this objective? 

Select ONE answer:

1. Reduce advertising in the local newspaper
2. Reduce the price of shoes with price inelastic demand
3. Reduce her opening times Monday to Friday
4. Reduce the price of shoes with a price elastic demand

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct – changes in tastes and fashion directly affects the kind of food Not correct – this may result in less awareness of Alex’s Hats, which could reduce the number of hats sold and therefore overall revenue falls.
2. Not correct – this will not increase sales revenue as customers are less sensitive to a price reduction and will only increase the amount they purchase by a small percentage.
3. Not correct – this may result in less sales for Alex as customers have less opportunity to shop.
4. Correct – sales revenue is income earned from selling a product or service.  A small change in price of a price elastic hat will lead to a proportionately greater increase in quantity sold.  The loss of revenue from the reduction in price will be more than made up by the increase in sales of hats, therefore increasing revenue.

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