What conclusion can be drawn if an increase in price results in a decrease in total revenue?

When analyzing the relationship between price changes and total revenue, a decrease in total revenue following an increase in price indicates that consumers are significantly responsive to price changes. In this case, the demand is considered elastic.

Elastic demand means that the percentage decrease in quantity demanded is greater than the percentage increase in price. Therefore, when the price rises, the quantity sold drops enough that total revenue—the product of price and quantity sold—decreases. This behavior illustrates that consumers are likely to reduce their purchase significantly when faced with higher prices, demonstrating their sensitivity to price changes.

In contrast, inelastic demand would show the opposite effect, where an increase in price would result in an increase in total revenue because the percentage drop in the quantity demanded would be smaller than the percentage increase in price. Unit elastic demand would indicate that total revenue remains unchanged with a price change, as the percentage change in quantity demanded perfectly offsets the price change. Revenue maximization typically occurs at the point of unit elasticity, but in this scenario where total revenue decreases, that is not the case.