Multiple Choice
Use this graph to answer the following questions.
At what price is the elasticity of demand for the product equal to one?
4. Elasticity
Total Revenue Along a Linear Demand Curve
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Use this graph to answer the following questions.
At what price is revenue maximized?
A
$2
B
$3
C
$4
D
$5
Verified step by step guidance1
Identify the demand curve on the graph, which shows the relationship between price (P) and quantity (Q).
Understand that total revenue (TR) is calculated as the product of price (P) and quantity (Q), i.e., TR = P * Q.
To find the price at which revenue is maximized, recognize that revenue is maximized at the midpoint of the linear demand curve, where the price elasticity of demand is unitary (elasticity = 1).
Locate the midpoint of the demand curve on the graph. This is the point where the curve is divided into two equal halves.
Determine the price corresponding to this midpoint on the graph, which is the price at which revenue is maximized.
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