Suppose we observe that as a firm increases its price its total revenue decreases. Which of the following is a possible value of its price elasticity of demand?
A) 0.25
B) 0.5
C) 1
D) 2

Question

Quizplus · Accepted Answer

A negative relationship between price and total revenue suggests that demand is elastic, as a change in price results in a relatively large change in quantity demanded. Therefore, the price elasticity of demand must be greater than 1. Option D is the only value given that is greater than 1.

Suppose We Observe That as a Firm Increases Its Price