Figure: Elasticity and Revenue Refer to the figure. When the price of the product rises from $4 to $6, the total revenue changes by the area(s) represented by:
A) F.
B) F - E.
C) F - (E +
B).
D) F + D + A.

Question

Figure: Elasticity and Revenue  Refer to the figure. When the price of the product rises from $4 to $6, the total revenue changes by the area(s) represented by:
A) F. 
B) F - E. 
C) F - (E + 
B). 
D) F + D + A.

Quizplus · Accepted Answer

The total revenue at the original price of $4 is represented by the rectangle formed by A, B, C, and D. When the price of the product rises to $6, the quantity demanded decreases from q1 to q2, as indicated by the movement along the demand curve. The new total revenue is represented by the rectangle formed by A, E, F, and C. The area represented by E + B is the decrease in revenue from the lost sales due to the increase in price, while the area represented by F is the increase in revenue from the higher price per unit. Therefore, the net change in revenue is the difference between F and the sum of E and B, which is represented by choice C.

Figure: Elasticity and Revenue Refer to the Figure