The price elasticity of demand is −2.0 for a certain firm's product.If the firm raises price,the firm manager 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 -2.0 means that for every 1% increase in price, quantity demanded will decrease by 2%. This implies that the demand for the product is fairly elastic. Therefore, if the firm raises its price, it can expect total revenue to decrease as the decrease in quantity demanded will more than offset the increase in price.

The Price Elasticity of Demand Is −2