Following a price decrease, total revenue will:1 pointincrease if the demand is price inelastic.always increase.always decrease.increase if demand is price elastic.
Question
Following a price decrease, total revenue will:1 pointincrease if the demand is price inelastic.always increase.always decrease.increase if demand is price elastic.
Solution
Total revenue will increase if demand is price elastic.
Here's why:
Price elasticity of demand measures how responsive quantity demanded is to a price change. The more elastic the demand, the more quantity demanded will increase when price decreases (and vice versa).
So, if demand is price elastic, a decrease in price will cause a proportionally larger increase in quantity demanded. This increase in quantity demanded will more than offset the decrease in price, leading to an increase in total revenue.
On the other hand, if demand is price inelastic, a decrease in price will cause a proportionally smaller increase in quantity demanded. This increase in quantity demanded will not offset the decrease in price, leading to a decrease in total revenue.
Therefore, following a price decrease, total revenue will increase if demand is price elastic.
Similar Questions
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged? a. Price falls and demand is inelastic: b. Price rises and demand is elastic: c. Price rises and supply is elastic: d. Price rises and supply is inelastic: e. Price rises and demand is inelastic: f. Price falls and demand is elastic: g. Price falls and demand is of unit elasticity:
How does a price decrease affect total revenue when demand is elastic? Total revenue decreases. Total revenue increases. Total revenue remains the same. The effect on total revenue cannot be determined.
When demand has unit elasticity, revenue will decrease if price is lowered/raised/stays the same/changes in either direction
Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease total revenue?Group of answer choices0.80.011.5
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