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Question
Microeconomics
Posted 8 months ago

Which of the following is a possible change in total revenue that occurs if you increase the price of a good with unit elasticity?

Choose 1 answer:
(A) 10%10 \%
(B) 1%1 \%
(c) 0%0 \%
(D) 1%-1 \%
(E) 5%5 \%
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Answer from Sia
Posted 8 months ago
Solution
a
Definition of Unit Elasticity: Unit elasticity means that the percentage change in quantity demanded is exactly equal to the percentage change in price
b
Total Revenue and Unit Elasticity: When the price of a good with unit elasticity is increased, the total revenue remains unchanged because the increase in price is exactly offset by the decrease in quantity demanded
c
Mathematical Expression: If Ed=1E_d = 1, then Total Revenue=P×Q\text{Total Revenue} = P \times Q. For unit elasticity, ΔP×ΔQ=0\Delta P \times \Delta Q = 0
Answer
(C) 0%0\%
Key Concept
Unit Elasticity
Explanation
When the price of a good with unit elasticity is increased, the total revenue does not change because the percentage change in price is exactly offset by the percentage change in quantity demanded.

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