What happens to total revenue at the unit-elastic point on a straight-line demand curve?

• A. Revenue is maximized.
• B. Revenue is minimized.
• C. Revenue remains constant when price changes.
• D. Revenue is always increasing with price.

Answer: (A)

Total revenue is maximized at the unit-elastic point because that’s where the quantity effect and the price effect balance so that increasing or decreasing price no longer raises revenue. When demand is linear and downward sloping, total revenue P × Q rises as you move down the demand curve until elasticity equals 1 in absolute value (elasticity = -1). At this unit-elastic point, the percentage change in quantity exactly offsets the percentage change in price, making marginal revenue zero. If you move beyond this point—lowering price further or raising it—the revenue falls. So the peak of total revenue occurs at the unit-elastic point.