If a firm facing a linear demand curve experiences an increase in total revenue after lowering the price
A) the initial price was set at a point where the demand is inelastic.
B) the initial price was set at a point where the demand is elastic.
C) the new price is set where the demand is perfectly elastic.
D) the new price is set where the demand is perfectly inelastic.

Question

Quizplus · Accepted Answer

If a firm facing a linear demand curve experiences an increase in total revenue after lowering the price, it means that the demand is elastic at the initial price. Elastic demand means that a small change in price leads to a relatively larger change in the quantity demanded. Therefore, lowering the price will increase the quantity demanded and lead to an increase in total revenue. However, if the demand were inelastic, a decrease in price would lead to a smaller increase in the quantity demanded, causing a decrease in total revenue.

If a Firm Facing a Linear Demand Curve Experiences an Increase