A firm computes the price elasticity of demand as 1.0 (expressed as a positive number). If its prices are increased by 35 percent, what will happen to total sales revenues?
A) They will fall by 3.5 percent.
B) They will fall by 35 per cent.
C) They will rise by 35 percent.
D) They will stay the same.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 1.0 means that the percentage change in quantity demanded is exactly equal to the percentage change in price, leading to no change in total revenue when prices are increased by 35 percent.

A Firm Computes the Price Elasticity of Demand as 1