What effect will an increase in price have on the total revenue of a firm whose ...
QuestionWhat effect will an increase in price have on the total revenue of a firm whose product has inelastic demanding? total revenue will
Related Lesson: Determining the Highest Profit by Comparing Total Revenue and Total Cost | Perfect Competition
The correct answer is A.
This question is asking about the effect of an increase in price on the total revenue of a firm whose product has inelastic demand. In economics, demand refers to the amount of a product or service that consumers are willing and able to purchase at a given price. Elastic demand means that a small change in price results in a significant change in the quantity demanded, while inelastic demand means that a change in price has very little effect on the quantity demanded.
If a firm's product has inelastic demand and the firm increases the price of the product, the total revenue of the firm will increase. This is because the increase in price will not significantly reduce the quantity demanded, and so the firm will be able to sell the same amount of product at a higher price.
For example, if a firm sells a product for $10 and sells 100 units, its total revenue is $1,000. If the firm increases the price to $12 but the quantity demanded only falls to 90 units, the firm's total revenue will increase to $1,080. This is because the increase in price more than offsets the decrease in quantity demanded.
Therefore, option A, which says that the total revenue will increase, is the correct answer to this question.
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