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A decrease in price will result in an increase in total revenue if :
- a)the percentage change in quantity demanded in less than the percentage change in price.
- b)the percentage change in quantity demanded is greater than the percentage change in price.
- c)demand is inelastic.
- d)the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
A decrease in price will result in an increase in total revenue if :a)...
Explanation:
Total revenue is the amount of money a company earns from selling goods or services. It is calculated by multiplying the price of a good by the quantity sold. When the price of a good changes, the quantity demanded also changes. Therefore, the total revenue may increase or decrease depending on the price elasticity of demand.
Price Elasticity of Demand:
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Relationship between Price and Total Revenue:
The relationship between the price of a good and total revenue is determined by the price elasticity of demand. If demand is elastic, a decrease in price will result in a greater increase in quantity demanded, leading to an increase in total revenue. On the other hand, if demand is inelastic, a decrease in price will result in a smaller increase in quantity demanded, leading to a decrease in total revenue.
Option B:
Option B is the correct answer because it states that a decrease in price will result in an increase in total revenue if the percentage change in quantity demanded is greater than the percentage change in price. This means that demand is elastic, and a decrease in price will lead to a larger increase in quantity demanded, resulting in an increase in total revenue.
For example, if the price of a good is $10 and the quantity demanded is 100 units, the total revenue is $1000. If the price decreases to $9 and the quantity demanded increases to 120 units, the total revenue will increase to $1080. In this case, the percentage change in quantity demanded is 20% (from 100 to 120), and the percentage change in price is 10% (from $10 to $9). Since the percentage change in quantity demanded is greater than the percentage change in price, the decrease in price will result in an increase in total revenue.
Total revenue is the amount of money a company earns from selling goods or services. It is calculated by multiplying the price of a good by the quantity sold. When the price of a good changes, the quantity demanded also changes. Therefore, the total revenue may increase or decrease depending on the price elasticity of demand.
Price Elasticity of Demand:
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Relationship between Price and Total Revenue:
The relationship between the price of a good and total revenue is determined by the price elasticity of demand. If demand is elastic, a decrease in price will result in a greater increase in quantity demanded, leading to an increase in total revenue. On the other hand, if demand is inelastic, a decrease in price will result in a smaller increase in quantity demanded, leading to a decrease in total revenue.
Option B:
Option B is the correct answer because it states that a decrease in price will result in an increase in total revenue if the percentage change in quantity demanded is greater than the percentage change in price. This means that demand is elastic, and a decrease in price will lead to a larger increase in quantity demanded, resulting in an increase in total revenue.
For example, if the price of a good is $10 and the quantity demanded is 100 units, the total revenue is $1000. If the price decreases to $9 and the quantity demanded increases to 120 units, the total revenue will increase to $1080. In this case, the percentage change in quantity demanded is 20% (from 100 to 120), and the percentage change in price is 10% (from $10 to $9). Since the percentage change in quantity demanded is greater than the percentage change in price, the decrease in price will result in an increase in total revenue.
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A decrease in price will result in an increase in total revenue if :a)...
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A decrease in price will result in an increase in total revenue if :a)the percentage change in quantity demanded in less than the percentage change in price.b)the percentage change in quantity demanded is greater than the percentage change in price.c)demand is inelastic.d)the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high.Correct answer is option 'B'. Can you explain this answer?
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