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If a firm decreases the price of a good and total revenue decreases, then A
If a firm decreases the price of a good and total revenue decreases, then
A. the demand for this good is price elastic.
B. the demand for this good is price inelastic.
C. the cross-price elasticity is negative.
D. the income elasticity is less than 1.
Expert Solution
The correct answer is Option B. the demand for this good is price inelastic.
Always remember that in the case of inelastic price demand for goods, a decrease of the latter may result in a less proportionate increase in the demand of goods. As a result total revenue decrease. In short, there is a direct relationship of price and revenue of an inelastic good. If the price decreases, revenue also decreases. If the price increases, revenue also increases.
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