An increase in price:
A) cannot cause a quantity effect.
B) always increases revenue due to the price effect.
C) may increase or decrease revenue.
D) always decreases revenue due to the quantity effect.

Question

Quizplus · Accepted Answer

An increase in price may either increase or decrease revenue. If the price effect (increase in revenue per unit sold) outweighs the quantity effect (decrease in units sold due to the higher price), then revenue will increase. However, if the quantity effect is greater than the price effect, then revenue will decrease. Therefore, choice A and D are incorrect, and choice B is only true if the price effect is larger than the quantity effect.

An Increase in Price