Question

If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will

a.) rise by 100%

b.) fall by 10%

c.) rise by 10%

d.) not change

Answer 1

Option

d.) not change

the change in price is equal to the change in quantity demanded and that offset the change of each other as

total revenue =P*Q

proportionately one increases and other decreases then there is no change in the total revenue.

The elasticity of demand =%change in quantity /% change in price

1=%change in quantity/10

% change in quantity =1*10=10%

the quantity decreases by 10% as the price increases by 10% thus there is no change in the total revenue.