A firm observes that when it increases the price of its product by 12%, quantity demanded decreases by 18%. The firm's manager states that demand is inelastic because consumers continue purchasing the product even after the price increase. The manager also argues that total revenue will increase following the price increase. Is the manager's statement True or False?

Question

Answer

True, because any price increase increases total revenue.

Answer

False, because PED cannot be calculated using percentage changes.

Answer

True, because PED = 0.67 and demand is inelastic.

Answer

False, because PED = 1.5, demand is elastic, and total revenue is likely to decrease.

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A firm observes that when it increases the price of its product by 12%, quantity...

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