Final answer:
Total revenue is highest when demand is unitary elastic, as changes in price are proportionally matched by changes in quantity, optimizing revenue. The three categories of elasticity are elastic, inelastic, and unitary, with unitary elasticity being the condition under which revenue is maximized.
Step-by-step explanation:
Along a straight-line demand curve, total revenue is the highest when elasticity of demand is unitary elastic. Total revenue is calculated as the price per unit times the quantity sold. When demand is unitary elastic, price changes are proportionally matched by changes in quantity, optimizing revenue. On the other hand, when the demand is elastic, lowering prices increases the quantity sold by a proportionally greater percentage, which can increase total revenue but not necessarily to its optimal level. With inelastic demand, price changes do not significantly affect the quantity sold, so increasing prices might lead to higher revenue but can also limit the quantity sold. The extreme case of perfect elasticity is theoretical, where any price change would lead to an infinite change in quantity demanded, which does not constitute practical market behavior.
Elasticities are divided into three broad categories: elastic, inelastic, and unitary. A demand curve with constant unitary elasticity is a straight line because the curve slopes upward and both price and quantity are increasing proportionally.