In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent

Economics Jan 19, 2021

In reaction to higher input costs, a physician decides to increase the average price of a visit by 5 percent. Will total revenues increase or decrease as a result of this action? Use the concept of price elasticity to substantiate your answer.

Expert Solution

The total revenue will increase.

Physician visits is an example of necessity goods. Necessity goods have a low price elasticity of demand meaning that they are not sensitive to a price change. With an inelastic demand, raising the average price of a visit will increase the physician's total revenue.

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