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Demand for a good has exactly unitary elasticity at the current price. According to the source, what happens to total revenue from a moderate price change?
ARevenue always falls when price is raised
BRevenue becomes impossible to predict
CRevenue stays the same either way, up or down
DRevenue always rises when price is raised
Answer & Solution
Correct answer: C. Revenue stays the same either way, up or down
1. Unitary elasticity means the percentage change in quantity always equals the percentage change in price.
2. A moderate price change is therefore offset exactly by an equal, opposite percentage change in quantity.
3. Since price times quantity, total revenue, involves offsetting percentage changes of equal size, revenue stays the same.
4. This holds whether the band in the source's example raises or lowers price moderately, so options that predict revenue always rising or falling are wrong.
_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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