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 for good A to:
A) increase,and total revenues for good B to decrease.
B) increase,and total revenues for good B to increase.
C) decrease,and total revenues for good B to increase.
D) decrease,and total revenues for good B to decrease.

Question

Quizplus · Accepted Answer

Since good A has many close substitutes, a price increase would likely cause consumers to switch to those substitutes, leading to a decrease in total revenues for good A. For good B, which makes up a significant portion of most families' budgets, a price increase would also likely cause a decrease in demand, leading to a decrease in total revenues as well. Therefore, total revenues for both goods would decrease.

A Firm Produces and Sells Two Goods,A and B