Question

an increase in total revenue results from which of the following?
a. price increases when demand is elastic.
b. price decreases when demand is inelastic.
c. price increases when demand is unitary elastic.
d. price decreases when demand is elastic.

Explanation:

Total revenue (TR) is tied to price elasticity of demand (Ed):

1. Elastic demand (|Ed|>1): Quantity demanded changes more than price. A price decrease leads to a larger % rise in quantity, increasing TR. A price increase reduces TR.
2. Inelastic demand (|Ed|<1): Quantity demanded changes less than price. A price increase raises TR, while a price decrease reduces TR.
3. Unitary elastic demand (|Ed|=1): Price changes leave TR unchanged.

Evaluating options:

• a: Price up + elastic demand → TR falls
• b: Price down + inelastic demand → TR falls
• c: Price up + unitary elastic → TR stays same
• d: Price down + elastic demand → TR rises

Answer:

d. Price decreases when demand is elastic.