If demand is price elastic, total revenue is
a.directly related to quantity demanded
b.inversely related to quantity demanded
c.directly related to price
d.directly related to price and inversely related to quantity demanded
e.not related to either price or to quantity demanded
b.inversely related to quantity demanded
If demand is price elastic, total revenue is directly related to price and inversely related to quantity demanded.
To understand why, let's start by understanding the concept of price elasticity of demand. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price.
When demand is price elastic, a change in price will result in a proportionately larger change in the quantity demanded. This means that if the price increases, the quantity demanded will decrease by a greater proportion, and if the price decreases, the quantity demanded will increase by a greater proportion.
Total revenue is calculated by multiplying the quantity demanded by the price. So, if the price increases and the quantity demanded decreases, total revenue will increase because the positive effect of the price increase outweighs the negative effect of the decrease in quantity demanded. Conversely, if the price decreases and the quantity demanded increases, total revenue will also increase because the positive effect of the increase in quantity demanded outweighs the negative effect of the price decrease.
Therefore, when demand is price elastic, total revenue is directly related to price (increases as price increases) and inversely related to quantity demanded (increases as quantity demanded decreases).
So, the correct answer is d. directly related to price and inversely related to quantity demanded.