If a monopolist knows its price elasticity of demand is greater than one, then a(n):
A)increase in price will increase total revenue.
B)decrease in price will increase total revenue.
C)decrease in price will decrease total revenue.
D)increase in price will have no impact on total revenue.

Question

Quizplus · Accepted Answer

If the monopolist knows that its price elasticity of demand is greater than one, it means that a decrease in price will result in a more than proportionate increase in the quantity demanded. Therefore, the increase in total revenue as a result of selling a higher quantity at a lower price will outweigh the decrease in revenue per unit. Therefore, a decrease in price will increase total revenue.

If a Monopolist Knows Its Price Elasticity of Demand Is