Why do revenues increase when producers decrease the price of an elastically demanded good?
A) Increased sales more than make up for the loss in revenue per unit sold.
B) Marginal costs decrease when the price of an elastically demanded good decreases.
C) Marginal benefits increase when the price of an elastically demanded good decreases.
D) They don't. Revenues increase when the price of an inelastic good decreases.

Question

Quizplus · Accepted Answer

When the price of an elastically demanded good is decreased, there is likely to be an increase in the quantity demanded. This increase in quantity demanded more than compensates for the decrease in price, resulting in an overall increase in revenue. In other words, the increase in sales outweighs the loss of revenue per unit sold.

Why Do Revenues Increase When Producers Decrease the Price of an Elastically