When the quantity effect outweighs the price effect:
A)a price increase will cause a drop in revenue.
B)a price increase will cause an increase in revenue.
C)a price decrease will cause a decrease in revenue.
D)None of these is true.

Question

Quizplus · Accepted Answer

When the quantity effect outweighs the price effect, it means that the increase in price leads to a decrease in the quantity demanded that is so large that it more than offsets the positive effect of the price increase on each unit sold. As a result, total revenue decreases with a price increase, and thus option A is the correct answer.

When the Quantity Effect Outweighs the Price Effect