A firm derives revenue from two sources: goods X and Y.Annual revenues from good X and Y are $10,000 and $20,000, respectively.If the price elasticity of demand for good X is -2.0 and the cross-price elasticity of demand between Y and X is 1.5 then a 4 percent price increase will
A)increase total revenues from X and Y by $800.
B)increase total revenues from X and Y by $8,000.
C)decrease total revenues from X and Y by $400.
D)increase total revenues from X and Y by $400.

Question

Quizplus · Accepted Answer

The price elasticity of demand for good X is -2.0, which means that a 4 percent price increase will lead to an 8 percent decrease in quantity demanded. The cross-price elasticity of demand between Y and X is 1.5, which means that a 4 percent price increase for good X will lead to a 6 percent increase in quantity demanded for good Y. The total revenue from good X will therefore decrease by 8 percent, or $800, while the total revenue from good Y will increase by 6 percent, or $1,200. The net effect will be an increase in total revenues of $400.

A Firm Derives Revenue from Two Sources: Goods X and Y.Annual