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Demand for a good is inelastic at the current price. According to the source, what happens to total revenue if the seller raises the price?
ATotal revenue falls, since quantity falls faster than price rises
BTotal revenue stays exactly the same as before
CTotal revenue depends only on the elasticity of supply
DTotal revenue rises, since quantity falls slower than price rises
Answer & Solution
Correct answer: D. Total revenue rises, since quantity falls slower than price rises
1. Total revenue is price multiplied by quantity sold.
2. When demand is inelastic, the percentage change in quantity demanded is smaller than the percentage change in price.
3. Table 5.3 states that a given percentage rise in price causes a smaller percentage fall in quantity, so total revenue rises.
4. Option A describes the elastic case, the opposite of what is given here.
5. Total revenue for a seller depends on the elasticity of demand for its product, not the elasticity of supply, ruling out option C.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 5 "Elasticity", section 5.3 | Elasticity and Pricing_
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