question archive If the relationship between price and quantity of hospital services is price elastic (more price-sensitive), what would be the effect on the quantity and revenue if the hospital raised its price? A
If the relationship between price and quantity of hospital services is price elastic (more price-sensitive), what would be the effect on the quantity and revenue if the hospital raised its price? A
Subject:EconomicsPrice:2.88 Bought3
If the relationship between price and quantity of hospital services is price elastic (more price-sensitive), what would be the effect on the quantity and revenue if the hospital raised its price?
A. Quantity would decrease and revenue would decrease.
B. Quantity would decrease and revenue would increase.
C. Quantity would increase and revenue would decrease.
D. Quantity would increase and revenue would increase.
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The correct option is A. Quantity would decrease and revenue would decrease.
In line with the law of demand, the increase in price will cause the quantity demanded to fall. As the demand is elastic, the quantity demanded will fall by a higher percentage than the percentage by which the price rises.
When the price rises, revenue will increase. However, when the demand falls, revenue will decrease. As the quantity demanded falls by a bigger percentage than the percentage by which the price increases, the effect of the fall in revenue due to decreased demand will be greater than the effect of the increased revenue due to the increased price. Thus, the net effect on the total revenue will be negative and it will fall.
