Question : When the price elasticity of demand is greater than 1, a decrease in price will result in:
Option 1: An increase in total revenue
Option 2: A decrease in total revenue
Option 3: No change in total revenue
Option 4: An indeterminate change in total revenue
Correct Answer: An increase in total revenue
Solution : The correct answer is (a) An increase in total revenue
When the price elasticity of demand is greater than 1 (i.e., demand is elastic), a decrease in price will result in a proportionately larger increase in quantity demanded. As a result, the increase in quantity demanded will more than offset the decrease in price, leading to an overall increase in total revenue. This is because the increase in quantity sold at the lower price compensates for the decrease in price, resulting in a net gain in revenue.
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