A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:
A) the demand curve is horizontal, reflecting infinite price elasticity.
B) if the price is lowered further total revenue will increase.
C) the demand curve for bus tickets must have shifted to the right.
D) the firm is operating in a range of the demand curve that is unit elastic.

Question

Quizplus · Accepted Answer

The fact that total revenues remain the same when the price of a bus ticket is reduced indicates that the percentage change in quantity demanded is exactly offset by the percentage change in price, which is characteristic of unit elasticity of demand.

A Public Transit Company Finds That When It Reduces the Price