Question

From a firm's point of view, when the demand for a good has a price elasticity of 0.5, then, all things remaining the same, a(n): increase in the price of the good will decrease the firm's revenue. increase in the price of the good will increase the firm's revenue. change in the price of the good will not affect the firm's revenue. change in the price of the good will not affect the quantity of the good demanded by consumers.

Answer 1

The correct answer is: increase in the price of the good will increase the firm's revenue.

Step-by-step explanation:

When the demand for goods has a price elasticity of 0.5, it implies that the demand is relatively inelastic. This implies that a proportionate change in price will cause less than proportionate change in price.

So when the firm increases the price of a good, this will lead to a smaller decline in the quantity demanded of the commodity. As a result, the total revenue will increase.