A price cut will increase the total revenue a firm receives,ceteris paribus,only if the demand for its product is:

Question

Quizplus · Accepted Answer

When demand is elastic, a price cut will lead to a relatively larger increase in quantity demanded, which can result in a greater increase in total revenue. This is because the percentage increase in quantity demanded is greater than the percentage decrease in price, leading to a net increase in total revenue. In contrast, when demand is inelastic, a price cut will only lead to a relatively small increase in quantity demanded, which may not be enough to offset the lower unit price, resulting in a net decrease in total revenue. Therefore, a price cut will only increase total revenue for a firm if demand for its product is elastic.

A Price Cut Will Increase the Total Revenue a Firm