The following figure shows the demand curve faced by a monopolist.

-Refer to the figure above.What is the change in total revenue due to a price reduction from $6 to $4?
A) Total revenue increases by $300.
B) Total revenue decreases by $600.
C) Total revenue increases by $200.
D) Total revenue increases by $600.

Question

The following figure shows the demand curve faced by a monopolist.
 
-Refer to the figure above.What is the change in total revenue due to a price reduction from $6 to $4?
A) Total revenue increases by $300. 
B) Total revenue decreases by $600. 
C) Total revenue increases by $200. 
D) Total revenue increases by $600.

Quizplus · Accepted Answer

The change in total revenue due to a price reduction from $6 to $4 can be calculated by looking at the change in quantity sold and the new price. Initially, at $6, the quantity sold is 300 units (from the graph or data not shown). After reducing the price to $4, the quantity sold increases to 500 units. The increase in quantity sold is 200 units. At the new price of $4, the increase in total revenue is 200 units * $4 = $800. However, we must also account for the loss in revenue on the initial 300 units, which is now sold at $2 less ($6 - $4 = $2). This loss is 300 units * $2 = $600. Therefore, the net change in total revenue is $800 (increase from additional units) - $600 (loss from reduced price on initial units) = $200 increase.

The Following Figure Shows the Demand Curve Faced by a Monopolist