Question

Rice Demand B C 4 D 2 4 8 Quantity per pered Please use the graph above and explain how total revenue will change when moving from point A to point B. also explain why total revenue changes using the concept of price elasticity

Answer 1

At point A:

Quantity demanded is 0 units and price is $8.

At point B:

Quantity demanded is 2 units and price is $6.

The total revenue is the product of price and quantity.

Total Revenue:

At point A = 8 $\fn_phv \times$ 0 = $0

At point B = 6 $\fn_phv \times$ 2 = $12

So, the total revenue increased by $12 when there is a movement from point A to point B.

The price elasticity of demand can be calculated by the formula given below:

$\fn_phv \frac{New\: quantity-Old\: quantity}{New\: Price-Old\: price} \times \frac{Old\: price}{Old\: quantity}$

$\fn_phv \frac{2-0}{6-8} \times \frac{8}{0}=Infinite$

Since the demand is elastic, the price and total revenue will move in opposite directions because there is a high degree of responsiveness to a change in price. So, a fall in price will lead to an increase in total revenue.