Assume that as a firm decreases its price its total revenue decreases. Which of the following is a possible value of its price elasticity of demand?
A) 0.4
B) 1
C) 1.4
D) 4

Question

Quizplus · Accepted Answer

If the firm decreases its price and sees a decrease in revenue, it means that its price elasticity of demand is inelastic, meaning a small change in price leads to a relatively smaller change in quantity demanded. A price elasticity of demand of 0.4 indicates inelastic demand, which would result in a decrease in total revenue when the price is lowered. Choices B, C, and D all indicate elastic demand, which would result in an increase in total revenue when the price is lowered.

Assume That as a Firm Decreases Its Price Its Total