In the range of prices where demand is elastic, how does total revenue behave as price decreases?

In the context of price elasticity of demand, when demand is elastic, a decrease in price leads to a proportionately larger increase in the quantity demanded. As a result, total revenue, which is calculated as price multiplied by quantity sold, increases when the price falls in the elastic range.

In an elastic demand scenario, the percentage change in quantity demanded exceeds the percentage change in price. This means that for every unit decrease in price, the increase in quantity sold is sufficient to offset the lower price, leading to an increase in total revenue. Therefore, when the price decreases, total revenue actually increases, contrary to the choice provided.

The correct understanding highlights that when demand is elastic, reducing the price generates more revenue overall because the gain from selling more units outweighs the loss from the decrease in price.