Compute the price elasticity of demand between these two points. Would you expect total revenue to rise or fall as a result of this second price reduction? Explain.
A) 1.25; Total revenue would rise because the demand is elastic, meaning a decrease in price leads to a proportionately larger increase in quantity demanded, resulting in higher total revenue.
B) -1.25; Total revenue would fall because the demand is inelastic, meaning a decrease in price leads to a proportionately smaller increase in quantity demanded, resulting in lower total revenue.