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How do changes in price affect total revenue?

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Explain the effect on revenue when there is a change in price (assuming competitors do not follow) with concepts and references.

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Solution Summary

the following explains the relationship between price and total revenue. A discussion of elasticity is provided as well.

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It depends on the market structure. In perfect competition, demand facing the firm is horizontal. If a firm lowers its price it will sell all it product at a lower price that market equilibrium. As a result Total revenue will decrease. If price is set above equilibrium then nothing will sell or fewer items will sell, which in neo-classical theory, will ...

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