When demand isunit elastic, price elasticity of demand a. equals 1 and total rev

Question

When demand isunit elastic, price elasticity of demand a. equals 1 and total revenue and price move in the samedirection. b. equals 1 and total revenue and price move in oppositedirections. c. equals 1 and total revenue does not change when pricechanges. d. equals 0 and total revenue does not change when pricechanges. When demand isunit elastic, price elasticity of demand a. equals 1 and total revenue and price move in the samedirection. b. equals 1 and total revenue and price move in oppositedirections. c. equals 1 and total revenue does not change when pricechanges. d. equals 0 and total revenue does not change when pricechanges.

Explanation / Answer

c. Clearly you can eliminate d, unit elastic has the word unit in it,so you know the elasticity is one. When a good is inelastic, monopolies charge a higher price tomaximize revenue, like in a. Since a is true for inelastic demand,it isn't true for unit elastic. When a good is elastic, a monopoly lowers price to maximize profit,like in b. So b isn't it. That leaves us with c.

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