In the case of a downward linear demand curve, total revenue is always maximised at:
A) the upper end of the demand curve
B) the lower end of the demand curve
C) the midpoint of the demand curve
D) it depends on the cost curve

Question

Quizplus · Accepted Answer

Total revenue is maximized at the midpoint of a linear demand curve because at that point, the price elasticity of demand is unitary (i.e. equal to 1), meaning that a 1% increase in price will result in a 1% decrease in quantity demanded, leaving total revenue unchanged. At any point above or below the midpoint, the price elasticity of demand will be either greater or less than 1, respectively, resulting in a decrease in total revenue with any small increase in price or decrease in quantity demanded.

In the Case of a Downward Linear Demand Curve, Total