Total revenues reach a maximum when
A) demand is elastic.
B) demand is inelastic.
C) demand is unit-elastic.
D) price elasticity is at a minimum.

Question

Quizplus · Accepted Answer

Total revenues will reach a maximum when demand is unit-elastic. In this situation, a change in price will be exactly offset by the resulting change in quantity demanded, resulting in no net change in total revenues. If demand is inelastic, a price increase will lead to an increase in total revenues, but this effect will diminish as prices continue to rise. If demand is elastic, an increase in price will result in a decrease in total revenues. Therefore, the point of unit elasticity represents the price at which total revenues are maximized.

Total Revenues Reach a Maximum When