Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
If demand is elastic, a decrease in price will increase total revenue.
B
If demand is inelastic, total revenue will increase when prices rise.
C
Total revenue is unaffected by changes in price if demand is unit elastic.
D
A decrease in price will always decrease total revenue, regardless of demand elasticity.
E
If demand is elastic, an increase in price will lead to a decrease in total revenue.
Understanding the Answer
Let's break down why this is correct
Answer
Total revenue is the total amount of money a company makes from selling its products, and it is closely related to demand elasticity, which measures how sensitive consumers are to price changes. When demand is elastic, a small decrease in price leads to a large increase in the quantity sold, causing total revenue to increase. For example, if a store lowers the price of a popular toy from $20 to $15, and sales jump from 100 to 200 toys, the total revenue increases from $2,000 to $3,000. Conversely, when demand is inelastic, a price decrease results in a smaller increase in quantity sold, which can decrease total revenue. So, understanding the relationship between total revenue and demand elasticity helps businesses make better pricing decisions.
Detailed Explanation
All options misunderstand how price changes affect total revenue based on demand elasticity. Other options are incorrect because This option suggests that lowering prices always increases revenue when demand is elastic; This option claims that raising prices increases revenue when demand is inelastic.
Key Concepts
Total Revenue
Demand Elasticity
Consumer Behavior
Topic
Total Revenue and Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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