Total Revenue Test - N/A PDF

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Total Revenue Total revenue (TR) is calculated by multiplying price (P) per unit and quantity (Q) of the good sold. TR = P x Q The total revenue test is a method of estimating the price elasticity of demand. As E (price elasticity of demand) will influence the total revenue, we can estimate the E by looking at the movement of the total revenue. The Total Revenue Test is another way to measure elasticity of demand. When demand is elastic, a decrease in price results in an increase in total revenue. The reverse is also true. When demand is inelastic, a decrease in price results in a decrease in total revenue. Similarly, when |E |< 1, an increase in price results in an increase in TR. Total Revenue Test E > 1, total revenue will decrease as price increases. P and TR moves in opposite directions. Producers can increase total revenue (TR = Price x Quantity) by lowering the price. Therefore, most department stores will have sales to attract customers. Apparel's demand is elastic. E < 1, total revenue will increase as price increases. P and TR moves in the same direction. Producers can increase total revenue by raising the price. Inelastic demand for agricultural products helps to explain why bumper crops depress the prices and total revenues for farmers....