Question

102. Price Elasticity of demand for a product is
zero. If the Firm increases the price of the product
by 10%, Total Revenue of the Firm will-
(a) Not change
(b) Increase to infinity
(c) Fall to zero
(d) Decrease by 10%​

Answer 1

decrease by 10percent

Answer 2

In this instance,price elasticity of demand is perfectly inelastic and a price increase of 10% will lead to a decrease in total revenue by 10%.Hence,the correct answer is option d) or decrease by 10%.

Explanation:

When the price elasticity of demand is perfectly inelastic,any given change in the price of the product/service will result in the same or equal change in the total revenue for that product or service.Therefore,in this instance,a 10% increase in product price will lead to the identical change or exactly 10% reduction in total revenue for the product establishing proportionate changes in both price of the product and the total revenue of the firm.