If demand is elastic, an increase in price
A)will increase total revenue.
B)will decrease total revenue.
C)will have an indeterminate effect on total revenue.
D)will decrease total profit.

Question

Quizplus · Accepted Answer

When demand is elastic, a small increase in price will lead to a significant decrease in quantity demanded. As a result, total revenue will decrease because the increase in price will not offset the decrease in quantity demanded by enough to increase total revenue. Therefore, an increase in price will decrease total revenue. If demand is elastic, a small increase in price will cause a large decrease in quantity demanded. As a result, the total revenue will decrease since the decrease in quantity demanded outweighs the increase in price. Therefore, choice B is the correct answer.

If Demand Is Elastic, an Increase in Price