Wikipedia (http://en.wikipedia.org/wiki/Price_elasticity_of_demand) says that when price elasticity of demand = unitary, or =-1 for a -ve slope linear demand curve, the change in price won’t affect total revenue.
I am not sure how this is possible. For instance, let’s consider the following example:
Demand Curve: P = A - 0.01*Q, with A=6
Now, given unit elasticity, the price = $3 and Quantity = 300.
If I increase my price by 33.33% from $3 to $4, then the new quantity demanded will be 200.
Hence, total revenue before the price change = $3*300 = $900; while the total revenue after the change = $4*$200 = $800.
Hence, total change in revenue = -11.11%. This is pretty significant.
Can someone please help me ? I am not sure what I am missing here? These basic questions are really tricky. I am really stuck.
Thanks in advance.