Question

If an 8% decrease in price leads to a 4% increase in the quantity demanded of the good, as a result of the price change, the total revenue for this product will:
a) decrease
b) increase
c) not change
d) double

If a 12% increase in price leads to a 6% decrease in quantity demanded of the good, as a result of the price change, the total revenue for the product will:
a) not change
b) decrease
c) increase
d) fall by half

Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sales?
a) Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit.
b) The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue
c) The price elasticity of demand can be used to determine the impact of changes in income on quantity sold
d) Knowing The price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change

If the price of a good is decreased and total revenue received from the sale of the good does nt change, then the price elasticity of demand for the good is:
a) unitary
b) elastic
c) inelastic
d) none of the above

Assume you own a small boutique hotel. In an attempt to raise revenue, you reduce your rates by 20%. However, your revenue falls. What does this indicate about the demand for your boutique hotel rooms?
a) the demand curve for your hotel rooms in vertical
b) boutique hotel rooms are inferior goods
c) demand is inelastic
d) demand is elastic

Answer 1

Question 1) option a)

As TR = P*Q

In %∆ terms, %∆ TR = %∆P + %∆Q

Thus %∆ TR = -8+4 = -4%

Thus TR falls by 4% ,

Question 2) option c

%∆ TR = 12-6 = 6%

Thus total revenue will increase by 6%

Question 3, option B)

By price elasticity of demand, we can check the effect of price changes on TR

Q4) option A)

If demand is unitary elastic , then %∆ in prices equals %∆Q demanded

So %∆ in TR will be zero

Q5) option C)

TR will fall if % increase in quantity demanded is less than % fall in prices , which implies that demand is inelastic.