If a firm raises the price of its product,its total revenue will _____
A)always increase.
B)increase only if demand is price inelastic.
C)increase only if demand is price elastic.
D)remain constant regardless of the price elasticity of demand.
E)never increase.

Question

Quizplus · Accepted Answer

If demand is price inelastic, then a price increase will result in a proportionally smaller decrease in quantity demanded. As a result, the increase in price will be enough to offset the decrease in quantity demanded, leading to an increase in total revenue. However, if demand is price elastic, then a price increase will result in a proportionally larger decrease in quantity demanded, which will lead to a decrease in total revenue. Therefore, total revenue will increase only if demand is price inelastic.

If a Firm Raises the Price of Its Product,its Total