Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will decrease
B
Total revenue will increase
C
Total revenue will remain unchanged
D
Total revenue will double
Understanding the Answer
Let's break down why this is correct
Answer
When a firm's product has elastic demand, it means that customers are very sensitive to price changes. If the firm raises its price by 10%, the quantity demanded for the product will likely decrease significantly, as many customers might decide to buy less or switch to cheaper alternatives. This means that the total revenue, which is the total amount of money the firm makes from sales, will probably go down. For example, if a company sells 1000 units at $10 each and raises the price to $11, they might only sell 800 units instead. In this case, even though the price is higher, the drop in sales means the total revenue decreases from $10,000 to $8,800.
Detailed Explanation
When demand is elastic, people buy much less if the price goes up. Other options are incorrect because Some might think higher prices always mean more money; This option suggests that price changes don't affect sales.
Key Concepts
Demand Elasticity
Total Revenue
Price Sensitivity
Topic
Understanding Demand Elasticity
Difficulty
medium level question
Cognitive Level
understand
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