Question

Answer and explain:

Answer 1

Option (A).

When total revenue (TR) is maximized, Marginal revenue (MR) is zero and price elasticity of demand (Ed) is equal to 1. This is at the mid-point of demand curve. To the right of the midpoint, quantity rises, price falls and demand becomes more inelastic. To the left of the midpoint, quantity falls, price rises and demand becomes more elastic.

From TR curve, TR is highest when Output (Q) = 4.5 units. Therefore, to the right of Q = 4.5 units (i.e. when Q > 4.5), demand is inelastic and to the left of Q = 4.5 units (i.e. when Q < 4.5), demand is elastic.