Assume that the price elasticity of demand is −2 for a certain firm's product.If the firm raises price,the firm's managers can expect total revenue to:
A) decrease.
B) increase.
C) remain constant.
D) either increase or remain constant, depending upon the size of the price increase.

Question

Quizplus · Accepted Answer

A price elasticity of demand of -2 means that for every 1% increase in price, there will be a 2% decrease in quantity demanded. Therefore, if the firm raises price, the decrease in quantity demanded will be greater than the increase in price, resulting in a decrease in total revenue.

Assume That the Price Elasticity of Demand Is −2 for a Certain