CIMA BA1 · Chapter 6 · Question 9 of 10
A 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 firm raises its price by 4%, what is the change in monthly total revenue?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) A fall of $10,080
Explanation
Quantity falls by 1.5 x 4% = 6%, to 30,000 x 0.94 = 28,200 units. New price = $15 x 1.04 = $15.60. New revenue = 28,200 x $15.60 = $439,920. Original revenue = 30,000 x $15 = $450,000. Revenue falls by $10,080.
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