Answer to Question #324659 in Microeconomics for arpita

Question

Explain the relationship between total revenue and the price elasticity of demand.

Answer 1

The revenue is P×Q. If the price elasticity of demand is less than 1, the revenue increases after price growth because the quantity decreases to a less extent. And vice versa, if the price elasticity is greater than 1, it is not reasonable to increase prices because the quantity decreases to a greater extent and revenue falls.