When will a price cut increase the total revenue a firm receives?
A) when demand for its product is inelastic
B) when demand for its product is unit inelastic
C) when demand for its product is unit elastic
D) when demand for its product is elastic

Question

Quizplus · Accepted Answer

A price cut will increase total revenue when demand for the product is elastic. This is because when demand is elastic, consumers are very sensitive to changes in price and a lower price will lead to a significant increase in the quantity demanded, resulting in an overall increase in total revenue. When demand is inelastic, consumers are less sensitive to price changes, and a price cut will have little effect on the quantity demanded, resulting in a decrease in total revenue. When demand is unit elastic, a price cut will have no effect on total revenue as the percentage change in price is exactly offset by the percentage change in quantity demanded.

When Will a Price Cut Increase the Total Revenue a Firm