How would the following changes in price affect revenue?
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How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?
a. Price falls and demand is inelastic.
b. Price rises and demand is elastic.
c. Price rises and supply is elastic.
d. Price rises and supply is inelastic.
e. Price rises and demand is inelastic.
f. Price falls and demand is elastic.
g. Price falls and demand is of unit elasticity.
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Solution Summary
This solution describes how each of the following changes in price would affect total revenue:
a. Price falls and demand is inelastic.
b. Price rises and demand is elastic.
c. Price rises and supply is elastic.
d. Price rises and supply is inelastic.
e. Price rises and demand is inelastic.
f. Price falls and demand is elastic.
g. Price falls and demand is of unit elasticity.
Solution Preview
a. Price falls and demand is inelastic. Decrease -- when prices fall and demand is inelastic, revenue will decrease. Because demand is inelastic, a change in price will not have a substantial effect on demand. Therefore, as price decreases, total revenue will slightly decrease due to the relative insensitivity of demand for an inelastic good.
b. Price ...
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