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Elasticities Of Demand And Supply Practice Test

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If the price falls from $8 to $6 on a linear demand curve, total revenue will
Correct Answer:
Increase
Explanation:
Total revenue depends on how price and quantity move together when you slide along a linear demand curve, since TR = P × Q(P). For a linear downward-sloping demand, Q = a − bP, so TR = aP − bP^2, a concave parabola in price with a maximum at P = a/(2b). If you start at a price above that revenue-maximizing level and lower the price (from 8 to 6 in this case), you move toward the peak, and total revenue tends to rise because the increase in quantity sold more than offsets the lower price. For a concrete example, with Q = 20 − 2P, TR at P = 8 is 32, while at P = 6 it is 48, so revenue increases. However, if you started below the revenue-maximizing price, further price cuts could reduce TR. The scenario given aligns with TR increasing.

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