When the demand curve for a good is unit elastic, raising the price of the good by 25 percent will change the revenue of the firm by:
A) 125 percent.
B) 100 percent.
C) 25 percent.
D) 0 percent.

Question

Quizplus · Accepted Answer

If the demand curve for a good is unit elastic, it means that the percentage change in the quantity demanded will be equal to the percentage change in the price. Therefore, if the price of the good is increased by 25 percent, the quantity demanded will decrease by 25 percent, resulting in a revenue change of 0 percent. This is because the increase in price is offset by the decrease in quantity demanded, leading to no overall change in revenue for the firm.

When the Demand Curve for a Good Is Unit Elastic