A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; Good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from Good A to
A)increase and total revenues from Good B to decrease
B)increase and total revenues from Good B to increase.
C)decrease and total revenues from Good B to increase.
D)decrease and total revenues from Good B to decrease.

Question

Quizplus · Accepted Answer

Good A has many substitutes, so a price increase would likely lead to a decrease in quantity demanded, reducing total revenue. Good B takes up a large portion of budgets, so a price increase would likely lead to a significant decrease in quantity demanded, also reducing total revenue.

A Firm Produces and Sells Two Goods, a and B