Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels,total revenue will
A)Decrease because fewer bags will be sold.
B)Increase because demand is elastic and revenue will rise.
C)Increase because the percentage increase in price is greater than the percentage change in quantity demanded.
D)Be impossible to predict because the percentage change in price is not known.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand is less than 1 (0.8), demand is inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price. Therefore, when the price increases, the total revenue increases because the loss in revenue from selling fewer units is less than the gain in revenue from the higher price per unit.

Assume the Price Elasticity of Demand for MC Pretzel Co