Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue will increase
B
Total revenue will decrease
C
Total revenue will remain the same
D
Total revenue cannot be determined
Understanding the Answer
Let's break down why this is correct
Answer
When a company faces perfectly elastic demand, it means that customers will only buy the product at a specific price, in this case, $10. If the company raises the price to $12, customers will stop buying the product altogether because they can find it at the lower price elsewhere. Since no sales will occur at the higher price, the total revenue, which is the money the company makes from selling its product, will drop to zero. For example, if the company usually sells 100 units at $10, it makes $1,000 in total revenue; but if it raises the price to $12 and sells nothing, the total revenue becomes $0. Therefore, increasing the price in this situation will lead to a complete loss of revenue.
Detailed Explanation
When demand is perfectly elastic, customers will only buy at the set price. Other options are incorrect because Some might think raising the price will bring in more money; It's a common mistake to think that changing the price won't affect sales.
Key Concepts
Perfectly elastic demand
Applications of elasticity in business
Consumer behavior and elasticity
Topic
Understanding Elasticity and Revenue
Difficulty
hard level question
Cognitive Level
understand
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