If demand is perfectly inelastic, what happens to total revenue when price increases?

If demand is perfectly inelastic, what happens to total revenue when price increases?

• A. Total revenue remains constant.
• B. Total revenue decreases.
• C. Total revenue increases.
• D. Total revenue can vary depending on supply.

Answer: (C)

With perfectly inelastic demand, quantity demanded does not respond to price changes (elasticity is 0). Since total revenue is price times quantity, and quantity stays fixed, increasing the price raises revenue. For example, if price goes from $10 to $12 and the quantity remains at 100 units, revenue goes from $1,000 to $1,200. So total revenue increases when price increases.

With perfectly inelastic demand, quantity demanded does not respond to price changes (elasticity is 0). Since total revenue is price times quantity, and quantity stays fixed, increasing the price raises revenue. For example, if price goes from $10 to $12 and the quantity remains at 100 units, revenue goes from $1,000 to $1,200. So total revenue increases when price increases.