What effect does a price increase have on producers' total revenue?
What will be an ideal response?
The effect of a price increase in total revenue depends on the elasticity of demand. If the demand is elastic, then total revenue will decrease because the decrease in the quantity demanded will outweigh the effect of the higher price. If the demand is inelastic, then total revenue will increase. In this case, the decrease in the quantity demanded is proportionally less than the increase in price and so the higher price leads to increased total revenue. Finally, if the demand is unit elastic, then the higher price does not change the total revenue. The percentage decrease in the quantity demanded just equals the percentage increase in the price and so the two effects just offset each other. The total revenue does not change.
You might also like to view...
Recent research indicates that inflation performance (low inflation) has been found to be best in countries with
A) the most independent central banks. B) political control of monetary policy. C) money financing of budget deficits. D) a policy of always keeping interest rates low.
A co-payment and coinsurance are the same thing.
A. True B. False C. Uncertain
The Jeans Store sells 7 pairs of jeans per day when it charges $100 per pair. It sells 8 pairs of jeans per day at a price of $90 per pair. The marginal revenue of the eighth pair of jeans is
A) $20. B) $90. C) $100. D) $700.
In which market model would there be a unique product for which there are no close substitutes?
A. Monopolistic competition B. Pure competition C. Pure monopoly D. Oligopoly