A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. What will result?
A) Total revenue will decrease.
B) Total revenue will increase.
C) The elasticity of demand will decrease.
D) The elasticity of demand will increase.

Question

Quizplus · Accepted Answer

Total revenue = Price x Quantity. A 25% decrease in price leading to a 20% increase in quantity demanded means the percentage change in quantity is less than the percentage change in price, which typically results in a decrease in total revenue.

A 25 Percent Decrease in the Price of Breakfast Cereal