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    Inelastic Demand and Total Revenue

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    If the demand for a product is inelastic, what will happen to total revenue if price is increased?
    Below is my response but I need more words.

    The total revenue will increase. When demand is inelastic, a given percentage increase in price corresponds to a smaller percentage decrease in quantity demanded. Thus total revenue, which is equal to price times quantity, must increase. The percentage change in the quantity demanded is less than the percentage change in price, then demand is inelastic.

    For example; If the demand for insulin is inelastic, an increase in insulin prices leads to more total revenue for insulin makers

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    Solution Preview

    The answer is, of course, an increase in total revenue.

    Price elasticity of demand measures the sensitivity of demand after a price adjustment. The price elasticity of demand can be computed by getting the ratio between the percentage change in demand by the percentage change in price.

    The standard formula is stated as:

    Price elasticity of demand= Percentage change in quantity demanded / Percentage change in price

    If the coefficient of the price elasticity of demand is within 0 and 1, the demand is inelastic.

    A basic rule in elasticity concepts is that when ...

    Solution Summary

    The solution shows what will happen to the total revenue if the demand for a product is inelastic. An example is shown to illustrate this economic phenomena.
    The sample computation established that if the quantity demanded in inelastic, an increase in the price will result to increase in revenue.