1)Along a straight-line demand curve, total revenue reaches a maximum in the range where

A. demand is elastic.

B. demand is inelastic.

C. demand is unitary elastic.

D. supply is elastic.

E. supply is inelastic.

2)

If the price of a good decreases by 5 percent and total revenue does not change, then the price elasticity of demand is

A. equal to 0.05.

B. perfectly elastic.

C. perfectly inelastic.

D. equal to 1.05.

E. unit-elastic.

1)Total revenue reaches a maximum in the range where C. demand is unitary elastic.

• The total revenue function is a function of quantity. The function will be maximized at the point of its first derivative with respect to quantity, which is marginal revenue, equals zero.
• When marginal revenue is zero, demand is unitary elastic, which occurs at the midpoint on a linear demand curve.

2)

Answer: E

Only when price elasticity of demand (PED) is equal to 1, that is it is unit-elastic, does revenue not change with price. This is because the percent change change in price is equal to the percent change in quantity at this point. If PED was elastic, then as price fell, revenue would rise. If PED was inelastic, then as price fell, revenue would fall.