Suppose that ABC Beer Brewer faces a linear demand curve and that the current price for its beer is set at a point where the price elasticity is 1.6. If ABC Beer Brewer increases the product price
A) the demand becomes more elastic and total revenue increases.
B) the demand becomes less elastic and total revenue increases.
C) the demand becomes more elastic and total revenue decreases.
D) the demand becomes less elastic and total revenue decreases.

Question

Quizplus · Accepted Answer

When the price elasticity of demand is greater than 1, a price increase would cause the demand to become more elastic, meaning that the percentage change in quantity demanded would be greater than the percentage change in price. This would result in a decrease in total revenue for ABC Beer Brewer. Therefore, choice C is the best answer.

Suppose That ABC Beer Brewer Faces a Linear Demand Curve