A Decrease in price will result in an increase in total revenue if:
a. the percentage change in quantity demanded is less than the percentage change in price.
b. the percentage change in quantity demanded is greater than the percentage change in price.
c. demand is inelastic.
d. the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high.
Answer: b) the percentage change in quantity demanded is greater than the percentage change in price.
According to total outlay method, If demand is elastic then decrease in price will result in increase in total revenue and vice versa.
Also, According to total outlay method, If demand is inelastic then decrease in price will result in decrease in total revenue and vice versa.
Hence We want elasticity of demand to be elastic.
Elasticity of demand = % change in quantity / % change in price
Demand is elastic if absolute value of elasticity of demand is greater than 1
=> absolute value of Elasticity of demand = absolute value of (% change in quantity / % change in price) > 1
=> % change in quantity > % change in price
So, demand is elastic when % change in quantity > % change in price.
So, A decrease in price will result in an increase in total revenue if demand is elastic i.e. % change in quantity > % change in price.
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