How does total revenue change as one moves downward and to the right along a linear demand curve?
A)It always increases.
B)It always decreases.
C)It first increases,then decreases.
D)It is unaffected by a movement along the demand curve.

Question

Quizplus · Accepted Answer

As one moves downward and to the right along a linear demand curve, the price decreases but the quantity demanded increases. Therefore, the total revenue initially increases as the decrease in price is more than compensated by the increase in quantity demanded. However, beyond a certain point, the decrease in price starts to have a greater impact on total revenue, and it begins to decrease. The peak of the total revenue occurs at the midpoint of the demand curve where price elasticity of demand is unitary.

How Does Total Revenue Change as One Moves Downward and to the Right