Question

12. An in e in the price of a commodity from $20 to $30 causes quantity nded to fall from 500 to 300. Which of the following is true for elasticity (absolute value)? A) Point elasticity is 1.25 so total revenue decreases B) Point elasticity is 0.8 so total revenue increases C) Arc (Midpoint) elasticity is 1.25 so total revenue decreases D) Arc (Midpoint) elasticity is 0.8 so total revenue increases E) Are (Midpoint) elasticity is 1.25 so total revenue increases

Answer 1

Ans.(C) - Calculation is shown in the pic attached here.

Here midpoint price elasticity of demand is -1.25(elastic) ,it means 1% increase in price leads only to 1.25% decrease in quantity demanded.So, total revenue will decrease.

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