Taco Bell firm raises the price of its tacos.The price elasticity of demand for Taco Bell tacos equals 5.0.What happens to the Taco Bell's total revenue?
A) nothing
B) It increases.
C) It decreases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases, or does not change.

Question

Quizplus · Accepted Answer

When the price elasticity of demand is greater than 1, a price increase leads to a decrease in total revenue. In this case, the price elasticity of demand is 5.0, which means that a 1% increase in price will lead to a 5% decrease in quantity demanded. Therefore, when Taco Bell raises its taco prices, it will experience a decrease in total revenue.

Taco Bell Firm Raises the Price of Its Tacos