How will a decrease in price affect a firm's revenues?
A) It depends on the price elasticity of demand.
B) Revenues will stay the same.
C) Revenues will decrease.
D) Revenues will increase.

Question

Quizplus · Accepted Answer

The impact of a decrease in price on a firm's revenues depends on the price elasticity of demand. If demand is price elastic, a decrease in price will lead to an increase in the quantity demanded, resulting in an increase in revenue. However, if demand is inelastic, a decrease in price will lead to only a small increase in the quantity demanded and will result in a decrease in revenue. Therefore, the correct answer is A) It depends on the price elasticity of demand.

How Will a Decrease in Price Affect a Firm's Revenues