Suppose a firm was interested in how much their revenue would change if they change the price of their good.

Which of the following would a firm use to determine how its revenue changes based on the price elasticity of demand?

Choose 1 answer:
(A) Total profit test
(B) Total revenue test
(C) Price elasticity of supply
(D) Income elasticity of demand
(E) Cross-price elasticity of demand

Question

Suppose a firm was interested in how much their revenue would change if they change the price of their good.

Which of the following would a firm use to determine how its revenue changes based on the price elasticity of demand?

Choose 1 answer:
(A) Total profit test
(B) Total revenue test
(C) Price elasticity of supply
(D) Income elasticity of demand
(E) Cross-price elasticity of demand

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Price Elasticity of Demand: Price elasticity of demand (PED) measures how the quantity demanded of a good responds to a change in its price. It is calculated as $ ext{PED} = \frac{\% ext{change in quantity demanded}}{\% ext{change in price}} $. ‖ ‖ b ⋮ Total Revenue Test: The total revenue test is used to determine how changes in price affect total revenue. If demand is elastic (PED > 1), a price decrease will increase total revenue, and a price increase will decrease total revenue. Conversely, if demand is inelastic (PED < 1), a price increase will increase total revenue, and a price decrease will decrease total revenue. ‖ ∻Answer∻ ⚹ (B) Total revenue test ⚹ ∻Key Concept∻ ⚹ Total revenue test ⚹ ∻Explanation∻ ⚹ The total revenue test helps firms understand how changes in the price of their good will affect their total revenue based on the price elasticity of demand. ⚹◊What is the formula to calculate price elasticity of demand?⍭ Generate me a similar question◊

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