If the price of a product increases by 20 percent and the quantity demanded decreases by 30 percent, then the producer should raise the price further to increase total revenue.

Question

Quizplus · Accepted Answer

When the price of a product increases by 20 percent and the quantity demanded decreases by 30 percent, it means that the product has an elastic demand. In such a scenario, the producer should not raise the price further because it will lead to a further decrease in quantity demanded and the total revenue will go down. Instead, the producer should consider decreasing the price to increase the quantity demanded and therefore, total revenue.

If the Price of a Product Increases by 20 Percent