Where will total revenue be highest on a linear demand curve
A)the top of the curve where prices are higher
B)the centre of the curve
C)the lower end of the curve where quantity is higher
D)any point on the curve; total revenue will be the same since increases in price are offset by decreases in quantity

Question

Quizplus · Accepted Answer

Total revenue is calculated by multiplying the price by the quantity sold. On a linear demand curve, the price and quantity have an inverse relationship, meaning that as the price increases, the quantity sold decreases and vice versa. The midpoint of the linear demand curve represents the point of unit elasticity where the price increase is perfectly offset by the decrease in quantity sold, resulting in no change in total revenue. However, on either side of the midpoint, a change in price will result in a change in quantity sold, and depending on the steepness of the demand curve, the change in quantity sold may offset the change in price resulting in the same total revenue or contribute to an increase or decrease in total revenue. Thus, the highest total revenue will occur at the quantity and price combination that maximizes the area of the rectangle formed by the price and quantity axes. This occurs at the centre of the curve where the elasticity of demand is relatively lower, and the increase in price is not offset by the decrease in quantity sold to a considerable extent, resulting in an increase in total revenue.

Where Will Total Revenue Be Highest on a Linear Demand