Answer:
B. total revenue will decrease.
Explanation:
The initial revenue for breakfast cereal is given by the product between the price of cereal (P) and the demanded quantity (D):
[tex]R_1 = P*D[/tex]
After a 25% decrease in price and a 20% increase in demand, the new revenue will be:
[tex]R_2 =(1-0.25) P*(1+0.20)D\\R_2 = 0.9P*D\\R_2=0.9R_1[/tex]
The new revenue is 90% of the original revenue; therefore, total revenue will decrease.
With a 25 percent increase in the price of breakfast cereals, there is a 20 percent increase in the quantity of cereal, this will lead to a decrease in the total revenue as the percentage change in price is more than the percentage change in quantity.
The price elasticity of demand is a critical notion to consider when thinking about how to gather the maximum income.
Total revenue is obtained by multiplying the ticket price by the number of tickets sold.
(Total revenue = Price × Quantity demanded)
We can take an example here:
The product between the cereal price (P) and the desired quantity (D) determines the initial total revenue of the breakfast cereal:
[tex]\rm\,TR_{1} = \rm\,P\times\;\rm\,D[/tex]
The new total revenue will be: After a 25% price reduction and a 20% rise in quantity demand:
[tex]\rm\,TR_{2} = (1 - 0.25)\rm\,P1 \times (1 + 0.20)\rm\,D1\\\\\\= \rm\,0.9 PD\\\\\\= \rm\, 0.9 TR_{1}[/tex]
Hence, as we can observe the new total revenue is 0.90 which is 90% of the original total revenue, this will lead to a decrease in the total revenue. Option B. total revenue will decrease is the correct answer.
To learn more about total revenue, refer to the link:
https://brainly.com/question/24528560
