A company sells a product at a price of $20 and finds that the demand is elastic. If the company raises the price to $25, what is the likely effect on total revenue?

When demand is elastic, it means that consumers are sensitive to price changes. If the company raises the price from $20 to $25, the quantity demanded is likely to decrease significantly because many customers may decide not to buy the product at the higher price. As a result, even though the price per item has increased, the total revenue may actually decrease because the loss of sales could outweigh the gain from the higher price. For example, if the company usually sells 100 units at $20, raising the price might lead to only selling 70 units at $25, resulting in lower total revenue. Therefore, in this case, raising the price could harm the company's overall earnings.