Over the past 30 years, the demand of cigarette is inelastic due to the low price, so firm can increases the price to increase revenues. But today, the prices of cigarette continue to rise due to the high demand have cause the elasticity to become elastic. For elastic demand, a small increase in price will cause a large quantity demanded to fall. Therefore, further price increases will cause revenues to fall. The graph 1 above shows the elastic demand curve for cigarette over the past 30 years. The elasticity of cigarette over the past 30 years is inelastic. From the graph, the original cigarette price which is P0 and the quantity demanded for this price is Q0. The revenue generated is the area 0P0E0Q0. When the firm increases the price of
