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Total Revenue Test quiz

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  • How is total revenue calculated in economics?
    Total revenue is calculated as price multiplied by quantity sold.
  • What is the main goal when using the total revenue test?
    The main goal is to maximize total revenue by finding the optimal price and quantity combination.
  • What does the price effect refer to in the context of total revenue?
    The price effect is the change in total revenue resulting from selling units at a different price per unit.
  • What does the quantity effect refer to in the context of total revenue?
    The quantity effect is the change in total revenue caused by selling more or fewer units due to a price change.
  • If a company raises its price and sells fewer units, which two effects are at play?
    Both the price effect (higher revenue per unit) and the quantity effect (fewer units sold) are at play.
  • In the example given, what happened to total revenue when the price increased from \$50 to \$60?
    Total revenue decreased from \$50,000 to \$48,000 when the price increased from \$50 to \$60.
  • Why did total revenue decrease when the price was raised in the example?
    Total revenue decreased because the quantity effect (fewer units sold) outweighed the price effect (higher price per unit).
  • How can you visually calculate total revenue on a graph?
    Total revenue can be calculated as the area of the rectangle formed by price and quantity on the graph.
  • What does it mean if total revenue increases when price increases?
    If total revenue increases when price increases, demand is inelastic.
  • What does it mean if total revenue decreases when price increases?
    If total revenue decreases when price increases, demand is elastic.
  • What does it mean if total revenue remains unchanged when price changes?
    If total revenue stays the same when price changes, demand is unit elastic.
  • How do you know if the quantity effect is larger than the price effect?
    If total revenue decreases after a price increase, the quantity effect is larger than the price effect.
  • What is the relationship between elasticity and the total revenue test?
    Elasticity is determined by observing how total revenue changes in response to price changes using the total revenue test.
  • If total revenue increases when price decreases, what does this indicate about demand?
    It indicates that demand is elastic.
  • In the example, was demand elastic or inelastic when the price was raised?
    Demand was elastic because total revenue decreased when the price was raised.