Question

Which of the following is not possible?a. Demand is elastic, and a decrease in price causes an increase in revenue.b. Demand is unit elastic, and a decrease in price causes an increase in revenue.c. Demand is inelastic, and an increase in price causes an increase in revenue.d. Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

Answer 1

Answer:

b. Demand is unit elastic, and a decrease in price causes an increase in revenue

Explanation:

According tothe revenue theory in economics

when the demand is inelastic the relationship within price and total revenue is direct. either both increases or decreases

when the demand is elastin this relationship is inverve, teh increase in price generates a decrease in total revenue

while their decrease an increase.

But, if the demand is unit elastic then, there is no variation at all

According to this theory, option B is impossible.

Answer 2

Answer:

The answer is b. Demand is unit elastic, and a decrease in price causes an increase in revenue

Explanation:

If a demand is unit elastic, any changes in price has no impact on the total revenue. Any changes in price will be balanced by any equivalent changes in quantity but in the opposite direction. So, revenue which is a product of price and quantity demanded will remain constant or unchanged that is ( i.e) there will be no change in revenue.

Take for example, if a price falls by 10%, demand increases by 10% and vice-versa, no change in total revenue as total revenue is a product of price and quantity.

The demand function will be PQ=K where P is price, Q is Quantity and K is a constant so any change in P is matched by Q so that product ( total revenue) remains the same as K

So with this explanation above option b is not possible