Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Inelastic demand increases total revenue when prices rise
B
Elastic demand increases total revenue when prices rise
C
Total revenue remains unchanged when demand is unitary elastic
D
The marginal revenue product of labor decreases as more workers are hired
E
Increasing price always leads to higher total revenue regardless of demand elasticity
Understanding the Answer
Let's break down why this is correct
Answer
Elasticity refers to how much the quantity demanded of a product changes when its price changes. If a product is elastic, a small price change will lead to a large change in the quantity sold, meaning that lowering the price can increase total revenue. For example, if a store sells sneakers and lowers the price from $100 to $80, and this leads to a big increase in sales, the store may earn more money overall despite the lower price. On the other hand, if a product is inelastic, a price change will not significantly affect the quantity sold, so raising the price could increase total revenue. Understanding these concepts helps businesses make smarter pricing decisions to maximize their income.
Detailed Explanation
Other options are incorrect because Some think that raising prices always means more money; Many believe that higher prices always lead to more money with elastic demand.
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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