Answer to Question #79145 in Economics of Enterprise for Shafee Kock

Question

with the aid of diagrams explain the relationship between price elasticity of demand and total revenue

Answer 1

When demand is inelastic – a rise in price leads to a rise in total revenue – a 20% rise in price might cause demand to contract by only 5% (Ped = -0.25).
When demand is elastic – a fall in price leads to a rise in total revenue - for example a 10% fall in price might cause demand to expand by only 25% (Ped = +2.5)
When demand is perfectly inelastic(i.e. Ped = zero), a given price change will result in the same revenue change, e.g. a 5 % increase in a firm's prices results in a 5 % increase in its total revenue.
Source:
https://www.tutor2u.net/economics/reference/price-elasticity-of-demand-and-total-revenue