If the price elasticity of demand is 1.0 and a firm raises its price by 15 percent,the total revenue will:
A) Rise by 15 percent.
B) Fall by 15 percent.
C) Rise by 6.67 percent.
D) Not change.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 1.0 means that demand is perfectly elastic, which implies that a 15% increase in price will lead to a 15% decrease in quantity demanded, which exactly offsets the price increase. Therefore, total revenue will not change.

If the Price Elasticity of Demand Is 1