You are a senior sales and marketing analyst for a major retailing firm in Wyoming. The marketing manager just stopped by your office with a very frustrated look on her face. She tells you that she is confused as to why, every time the company raises the sales price of its products, total revenue for the company declines.
Based on this information, which of the following explanations do you give her for why this situation occurs?
A) The demand for the company's products is inelastic, so total revenue declines when prices are raised.
B) The demand for the company's products is elastic, so total revenue declines when prices are raised.
C) The demand for the company's products is elastic, so unit sales increase when prices are raised.
D) The demand for the company's products is inelastic, so unit sales increase when prices are raised.
E) The demand for the company's products is elastic, so fixed costs increase when prices are raised.

Question

Quizplus · Accepted Answer

When the demand for a company's products is elastic, total revenue will decline when prices are raised, as consumers will be more likely to look for cheaper alternatives or substitutes. This means that even if unit sales increase slightly due to the price increase, the decrease in price per unit will still result in an overall decline in revenue.

You Are a Senior Sales and Marketing Analyst for a Major