Use the following diagram to answer the following questions.

-Refer to Diagram 4-3. Suppose supply decreases from S₁ to S₂. How much does total revenue change?

Question

Use the following diagram to answer the following questions.
 
-Refer to Diagram 4-3. Suppose supply decreases from S₁ to S₂. How much does total revenue change?

Quizplus · Accepted Answer

When supply decreases from S₁ to S₂, the equilibrium point moves from point A to point B. At point A, the price is P₁ and the quantity demanded is Q₁, resulting in total revenue of P₁Q₁. At point B, the price increases to P₂ and the quantity demanded decreases to Q₂, resulting in total revenue of P₂Q₂. Since P₂ is less than P₁, and Q₂ is less than Q₁, the total revenue decreases by $1,000 (P₂Q₂ - P₁Q₁ = $25 x 40 - $30 x 35 = $1,000). Therefore, the correct answer is D) decreases by $1,000.

Use the Following Diagram to Answer the Following Questions