Certified Management Accountant Practice Exam 2026 – The Comprehensive All-in-One Guide to Exam Success!

When analyzing the effect of a price increase on total revenue within the elastic range, understanding the concept of elasticity is crucial. Elastic demand implies that consumers are highly responsive to price changes. Specifically, when demand is elastic, a percentage increase in price leads to a larger percentage decrease in the quantity demanded.

In this scenario, if the price of a product increases in the elastic range, the total revenue will decrease. This is because the decrease in quantity demanded will outweigh the increase in price. For instance, if a company raises the price by 10% but demand falls by more than 10%, the loss in sales will result in a net reduction in total revenue.

In contrast, if demand were inelastic, an increase in price would lead to an increase in total revenue, as the quantity demanded would not decline significantly enough to counterbalance the higher price. Therefore, recognizing the nature of demand elasticity is key to determining the impact on total revenue, leading to the conclusion that total revenue will decrease when prices are raised in the elastic range.