Question

In: Economics

When price elasticity of demand is equal to unity, a small decrease in price: increases total...

When price elasticity of demand is equal to unity, a small decrease in price:

increases total revenue.

decreases total revenue.

has no effect on revenues.

raises marginal revenue.

Solutions

Expert Solution

Option C.

  • The price elasticity of demand measures the change in quantity demanded in accordance with the changes in the price of a good.
  • When price elasticity of demand is unity, there will an equal change in quantity demanded when the price changes.
  • Hence when the P.E.D is unity, a small decrease in price will increase the quantity demanded but the total revenue will not change.

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