If Pete raises his price of muffins from $2 to $3 and his total revenue increases from $35,000 to $38,000, then:
A) the demand for Pete's muffins in this range is elastic.
B) the demand for Pete's muffins in this range is inelastic.
C) the demand for Pete's muffins in this range is unit elastic.
D) the percentage change in quantity demanded must exceed the percentage change in product price.

Question

Quizplus · Accepted Answer

Since the increase in price resulted in an increase in total revenue, the demand for Pete's muffins in this range is inelastic. If the demand were elastic, an increase in price would result in a decrease in total revenue. Unit elastic demand would mean that the percentage change in quantity demanded is exactly equal to the percentage change in product price. The fourth choice is not necessarily true in all cases and does not answer the question directly.

If Pete Raises His Price of Muffins from $2 to $3