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Stella [2.4K]
3 years ago
8

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a r

esult: A. total revenue will remain constant. B. total revenue will decrease. C. the elasticity of demand will increase. D. total revenue will increase.
Business
1 answer:
krok68 [10]3 years ago
7 0

Answer:

B. total revenue will decrease.

Explanation:

The initial revenue for breakfast cereal is given by the product between the price of cereal (P) and the demanded quantity (D):

R_1 = P*D

After a 25% decrease in price and a 20% increase in demand, the new revenue will be:

R_2 =(1-0.25) P*(1+0.20)D\\R_2 = 0.9P*D\\R_2=0.9R_1

The new revenue is 90% of the original revenue; therefore, total revenue will decrease.

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