The total revenue test says that if a price decrease leads to
A) an increase in total revenue, supply is elastic.
B) a decrease in total revenue, supply is unit elastic.
C) a decrease in total revenue, supply is inelastic.
D) an increase in total revenue, supply is inelastic.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The total revenue test is related to demand elasticity, not supply elasticity. It states that if a price decrease leads to an increase in total revenue, demand is elastic; if a price decrease leads to a decrease in total revenue, demand is inelastic; and if total revenue remains unchanged, demand is unit elastic. None of the provided options correctly applies the total revenue test to supply elasticity.

The Total Revenue Test Says That If a Price Decrease