When analyzing the relationship between price changes and total revenue, it’s important to understand how these factors interact. In the example provided, when the price of product A increases by $4, the volume sold decreases by 5 units. To find the total change in revenue, we can use the formula:
Total Change in Revenue = Change in Price × Change in Quantity Sold
Here, the change in price is +$4 and the change in quantity is -5. Plugging these values into the formula gives us:
Total Change in Revenue = 4 × (-5) = -20
This means the total revenue actually decreases by $20, not increases. So, it’s crucial to note that an increase in price does not always lead to a higher total revenue, especially if the decrease in sales volume is substantial. The conclusions drawn from such scenarios can guide pricing strategies effectively in the market.