Elasticity of Demand

For a linear demand curve, at the price where elasticity is -2.0, reducing prices will:

A)

increase total revenue and we are not at the point of maximum total revenue.

Achieved

B)

decrease total revenue and we are not at the point of maximum total revenue.

Failed

C)

increase total revenue and we are at the point of maximum total revenue.

I’m confused how this increases revenue. Elasticity of demand = %change of QD/%change of price.

With a value of -2 this means -2/1

If I write an example:

Base values are $100 each, quantity is 100 units. 100 * 100 = 10,000

Quantity = .98 * 100 units = 98 units

Price = 1.01 * 100 = $101. 98 * 101 = 9,898.

I’m confused. What did I do wrong?

Edit: Price = 1.01 * 100 = 101. New total revenue = 98 * 101 = 9,898

You failed to read the question carefully.

Oh wow!!! Thanks!

Just for confirmation in that case I could increase demand by 4 and decrease price by 2?

Yup.