A price increase will cause an increase in total revenue when:
A) the price effect outweighs the quantity effect.
B) the quantity effect outweighs the price effect.
C) demand is perfectly elastic.
D) demand is unit elastic.

Question

Quizplus · Accepted Answer

When the price effect outweighs the quantity effect, the increase in price results in a more-than-proportional increase in revenue. This happens when demand is inelastic, meaning that consumers are not very responsive to changes in price and are willing to pay more for the product. In this case, even though the quantity sold may decrease as a result of the price increase, the increase in price will result in a greater increase in revenue due to the higher price per unit.

A Price Increase Will Cause an Increase in Total Revenue