Elasticity of Demand and Total Revenue - Assignment Example

While the reduction in price per unit of the commodity tends to reduce revenue, an increase in quantity sold caused by it tends to increase the revenue. Price elasticity remaining greater than one above the midpoint C implies that the percentage increase in quantity demanded exceeds the percentage fall in price which causes the total revenue to increase. Therefore, up to the level of output Q which corresponds to the mid-point C of the demand curve, the total revenue curve goes on increasing.

Inelastic range (e < 1): as we move down from the mid-point C of the demand curve, price elasticity being less than one implies that the relative increase in the quantity demanded is less than the relative fall in price which causes the total revenue curve to decline. Therefore beyond output OQ corresponding to the midpoint C of the demand curve, the total revenue curve is sloping downward as shown in the figure.