Which of the following statements is true?
A)When a firm lowers the price of its product, total revenue always falls.
B)When a firm raises the price of its product, total revenue always rises.
C)When a firm raises the price of its product, total revenue always falls.
D)When a firm lowers the price of its product, total revenue always rises.
E)When a firm lowers the price of its product, the impact on total revenue depends upon whether the good is elastic, inelastic, or unit elastic in demand.

Question

Quizplus · Accepted Answer

The impact of a price change on total revenue depends on the elasticity of demand. If demand is elastic, a decrease in price will lead to an increase in total revenue, while an increase in price will lead to a decrease in total revenue. If demand is inelastic, a decrease in price will lead to a decrease in total revenue, while an increase in price will lead to an increase in total revenue. If demand is unit elastic, a price change will not affect total revenue. Therefore, statement E is the only true statement.

Which of the Following Statements Is True