Unit elastic demand means total revenue is unaffected by price changes; what is the impact on total revenue?

Unit elastic demand means total revenue is unaffected by price changes; what is the impact on total revenue?

• A. Total revenue rises
• B. Total revenue falls
• C. Total revenue remains unchanged
• D. Total revenue is unpredictable

Answer: (C)

Unit elasticity means the percentage change in quantity demanded equals the percentage change in price, in the opposite direction. Since total revenue is price times quantity, these changes cancel out, so total revenue stays the same when price changes. For a quick check, if price rises by 10% and quantity falls by about 9.09% (so that Q scales with P to keep P×Q constant), the new revenue equals the old revenue. For example, starting with P = 10 and Q = 100 gives revenue 1000; increasing price to 11 and reducing quantity to about 90.9 gives revenue roughly 11 × 90.9 ≈ 1000. This stability of total revenue under price changes is what defines unit-elastic demand.

Unit elasticity means the percentage change in quantity demanded equals the percentage change in price, in the opposite direction. Since total revenue is price times quantity, these changes cancel out, so total revenue stays the same when price changes. For a quick check, if price rises by 10% and quantity falls by about 9.09% (so that Q scales with P to keep P×Q constant), the new revenue equals the old revenue. For example, starting with P = 10 and Q = 100 gives revenue 1000; increasing price to 11 and reducing quantity to about 90.9 gives revenue roughly 11 × 90.9 ≈ 1000. This stability of total revenue under price changes is what defines unit-elastic demand.