Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue increases as price decreases
B
Total revenue decreases as price decreases
C
Total revenue remains the same regardless of price changes
D
Total revenue first increases then decreases
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a product with elastic demand decreases, the total revenue usually increases. This happens because consumers are very responsive to price changes; a lower price encourages them to buy much more of the product. For example, if a popular video game lowers its price from $60 to $30, many more people might decide to buy it, leading to a significant increase in the number of copies sold. Since the increase in quantity sold is greater than the loss from the lower price, the overall revenue goes up. Therefore, for products with elastic demand, lowering the price can be a smart strategy to boost total revenue.
Detailed Explanation
When demand is elastic, people buy much more of a product if the price goes down. Other options are incorrect because Some might think that lowering the price always brings in more money; It's a common mistake to think that price changes don't affect total revenue.
Key Concepts
Elasticity of Demand
Total Revenue
Marginal Revenue Product
Topic
Understanding Elasticity and Revenue
Difficulty
medium level question
Cognitive Level
understand
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