Question

A firm sells a good with a price elasticity of demand equal to –1.82. If the firm decreases the selling price, the firm's total revenue from the sales of this product will _______.

A. remain the same

B. More information is needed to fill in the blank.

C increase

D.decrease

Answer 1

Answer - Increase ( Option C )

Explanation-:
According to Total Expenditure / Total Outlay method-:
1- If a rise or fall in the price of a good has no change in its total revenue, then the elasticity of demand is unitary(e = 1)

2- If there is fall in the price of a good, total revenue increases or if there is rise in the price of a good, the total revenue decreases, then the demand for that good is elastic (|e| >1). In this case there is elastic demand , therefore total revenue will increase.

3- If there is fall in the price of a good, total revenue decreases or if there is rise in the price of a good, the total revenue increases, then the demand for that good is inelastic (|e| < 1).