Total revenue would be maximized when elasticity is (LO3) a) above 10 b) rising c) falling d) 1 e) 0

The price elasticity of demand (E) is calculated as the percentage change in quantity demanded divided by the percentage change in price. It can be expressed mathematically as: \[E = \frac{% \Delta Q}{% \Delta P}\] Where \(E\) is the price elasticity of demand, \(% \Delta Q\) is the percentage change in quantity demanded, and \(% \Delta P\) is the percentage change in price.

The total revenue test is a method used to determine whether the demand for a product is elastic or inelastic based on the changes in total revenue following a price change. Total revenue is calculated by multiplying the price of the product by the quantity demanded. When the price elasticity of demand is elastic, meaning a small price change leads to a larger percentage change in quantity demanded, total revenue moves in the opposite direction of the price change. Conversely, when the demand is inelastic, total revenue moves in the same direction as the price change. The relationship can be classified as follows: 1. When \(E > 1\), demand is elastic. A decrease in price will increase total revenue, while an increase in price will decrease total revenue. 2. When \(E < 1\), demand is inelastic. A decrease in price will decrease total revenue, while an increase in price will increase total revenue. 3. When \(E = 1\), demand is unitary elastic, meaning any percentage change in price is matched by an equal percentage change in quantity demanded.

When total revenue is maximized, any further price changes in either direction (increase or decrease) will cause total revenue to decrease. Since a unitary elastic demand has an equal percentage change in price and quantity demanded, this point marks the highest level of total revenue. Therefore, the correct answer is: d) 1