What effect does a price increase have on producers' total revenue?
What will be an ideal response?
The effect of a price increase in total revenue depends on the elasticity of demand. If the demand is elastic, then total revenue will decrease because the decrease in the quantity demanded will outweigh the effect of the higher price. If the demand is inelastic, then total revenue will increase. In this case, the decrease in the quantity demanded is proportionally less than the increase in price and so the higher price leads to increased total revenue. Finally, if the demand is unit elastic, then the higher price does not change the total revenue. The percentage decrease in the quantity demanded just equals the percentage increase in the price and so the two effects just offset each other. The total revenue does not change.
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Which of the following statements is true
a. A firm should increase quantity as long as average cost is greater than price b. A firm should increase quantity as long as price is greater than marginal cost c. A firm should increase quantity as long as price is higher than average cost, regardless of the marginal cost d. A firm should increase quantity as long as marginal cost is greater than price
A monopolistic ally competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating:
A. With positive profits B. With a loss C. At the break-even point D. At a non-optimal level of output