A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
A) total revenue will decrease.
B) total revenue will increase.
C) total revenue will remain constant.
D) the elasticity of demand will increase.

Question

Quizplus · Accepted Answer

The price elasticity of demand is evident here; a 25% decrease in price leads to a 20% increase in quantity demanded, which is not enough to offset the price reduction, leading to a decrease in total revenue.

A 25 Percent Decrease in the Price of Breakfast Cereal