Suppose that demand for cars is inelastic at the current price. If a car company decides to raise it's price,

a. this would decrease total revenue for the car company.

b. this would increase total revenue for the car company.

c. this would not change total revenue at all for the car company.

• Suppose that demand for cars is inelastic at the current price. If a car company decides to raise it's price, b. this would increase total revenue for the car company.

An inelastic demand at the current price means if the company decides to raise its price, the quantity purchased will decrease by a lower percentage than the percentage change in price. Because revenue is measured by [Math Processing Error]Revenue=P×Q, when the rise in price has a greater effect than the decrease in quantity, an increase in price causes a rise in total revenue.