question archive If the relationship between price and quantity of hospital services is price inelastic (less 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 inelastic (less 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 inelastic (less 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 B. Quantity would decrease and revenue would increase.
The quantity demanded would fall in line with the law of demand as the price has increased. The percentage increase in the price would be higher than the percentage fall in quantity demanded as the demand is inelastic. Now, we know that the percentage increase in price will be higher than the percentage change in quantity demanded. This means that the gain in revenue due to the increased price will be higher than the fall in revenue due to the decreased quantity demanded. The net effect on the total revenue will be positive, and the total revenue will rise.
