Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will increase significantly
B
Total revenue will decrease
C
Total revenue will remain unchanged
D
Total revenue will first increase then decrease
Understanding the Answer
Let's break down why this is correct
Answer
When a firm decreases the price of a product in the elastic range of its demand curve, total revenue is expected to increase. This happens because, in the elastic range, consumers are very responsive to price changes; if the price goes down, they buy significantly more of the product. For example, if a toy costs $10 and the firm lowers the price to $8, more parents might buy it for their children, leading to a larger overall sales volume. The increase in the number of toys sold usually outweighs the loss from the lower price, resulting in higher total revenue for the firm. So, when prices decrease in this range, the firm benefits from both more sales and increased total revenue.
Detailed Explanation
When a firm lowers the price in the elastic range, more people want to buy the product. Other options are incorrect because Some might think lowering the price always means less money; It's a common mistake to think price changes don't affect total revenue.
Key Concepts
Price Elasticity of Demand
Total Revenue
Monopolistic Competition
Topic
Price Elasticity and Revenue
Difficulty
easy level question
Cognitive Level
understand
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