CIMA BA1 · Chapter 6 · Question 3 of 10
Demand for a product is price elastic. If the firm reduces its price, what will happen to total revenue?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Total revenue will rise
Explanation
When demand is elastic, the percentage increase in quantity demanded exceeds the percentage fall in price, so total revenue (price x quantity) rises when price is cut. With inelastic demand a price cut reduces revenue.
More Elasticity MCQs
- Q5Which of the following is likely to make demand for a product more price elastic?
- Q6The price of Product B rises by 5% and, as a result, demand for Product A rises by 8%. What is the cross elasticity of demand for A with…
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- Q8Which of the following would make the supply of a product more price INELASTIC?
- Q9A firm sells 30,000 units a month at $15 each. Price elasticity of demand is 1.5 and is assumed constant over the relevant range. If the…