Asked by: Earlene Jurado
asked in category: General Last Updated: 30th April, 2020

How does elastic demand affect total revenue?

If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue.

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Besides, how does elastic demand increase revenue?

a) If demand is price inelastic, then increasing price will decrease revenue. b) If demand is price elastic, then decreasing price will increase revenue. c) If demand is perfectly inelastic, then revenue is the same at any price. d) Elasticity is constant along a linear demand curve and so too is revenue.

Secondly, how does the total revenue test indicate demand elasticity? A total revenue test approximates the price elasticity of demand by measuring the change in total revenue from a change in the price of a product or service. The total revenue test assumes all other factors that may influence revenue will remain constant during the testing period.

Correspondingly, what is the relationship between elasticity and total revenue?

Elasticity means that as the price increases, the total units sold decrease and, as a result, so does total revenue.

What happens to total revenue when demand is unit elastic and the price changes?

If demand is unit elastic then change in price has no impact on total revenue. Any change in price is matched by change in demand by same amount. Say if price falls by 10% demand increases by 10% and vice-versa, so no change in total revenue (as total revenue is product of price and quantity).

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