We know the following:

• Own price elasticity for iguana shipping is .20 or 1/5.
• Price is increasing from $1 to $2.
• Current revenues from iguana shipments are $1x1,000 or $1,000.

   A quick look at the choices reveals that we need to figure out what will happen to revenues as a result of this price increase.

   We know that %Q = -0.20 x %P. Therefore, an increase in price of 100% ($1 to $2 using our simple formula) will lead to a drop in sales of 20%, meaning sales will fall from 1,000 iguanas shipped to 800.

   If it costs $2 to ship an iguana and 800 are shipped, total revenue from iguana shipments will be $1,600; an increase of $600 from before the price increase.

16. The post office charges $1 to mail an iguana overseas. At this price 1,000 iguana are mailed each week. To increase revenue, the post office is considering an increase in the price of overseas iguana delivery to $2. Post office researchers have determined that the own price elasticity of demand for its iguana delivery service is 1/5. If the post office increases its price to $2:

1. revenue will fall by $300.
2. revenue will increase by $300.
3. revenue won't change.
4. revenue will fall by $600.
5. revenue will increase by $600. As we show above, this is the correct answer.