Answer (D) is correct . The concept of price elasticity is of great practical concern to management accountants because a knowledge of elasticity tells the accountant whether a price change will increase or decrease total revenue. If the demand elasticity is greater than one (i.e., demand for the product is elastic), a price decrease will cause an increase in total revenue because the demand increases by a greater percentage than the price decreases.
Answer (A) is incorrect because A price decrease on a product with inelastic demand causes a decrease in total revenue. A price decrease on a product with elastic demand causes an increase in total revenue.
Answer (B) is incorrect because Unitary elasticity (elasticity = 1.0) results in no change in revenue.
Answer (C) is incorrect because The demand curve will not shift when price decreases; instead, the equilibrium point will move to a new position on the same curve. A price decrease on a product with elastic demand (elasticity > 1.0) results in an increase in total revenue.
|
