Final Answer:
When businesses raise prices on products with inelastic demand, total revenues are more likely to Increase than when prices are increased on products with elastic demand. Thus, the correct option is c).
Step-by-step explanation:
The answer is (c) Increase. When businesses raise prices on products with inelastic demand, total revenues are more likely to increase. Inelastic demand means that consumers are not highly responsive to changes in price, so a price increase leads to a proportionally smaller decrease in quantity demanded. As a result, the higher prices contribute more significantly to total revenue, offsetting the decline in quantity sold.
Products with inelastic demand exhibit a lower price elasticity of demand (|E| < 1). The formula for total revenue (TR) is given by TR = P * Q, where P is the price and Q is the quantity sold. When prices are increased for products with inelastic demand, the percentage decrease in quantity (Q) is smaller than the percentage increase in price (P), leading to an overall increase in total revenue. This is in contrast to products with elastic demand, where a price increase leads to a relatively larger decrease in quantity demanded, resulting in a decrease in total revenue.
In summary, understanding the concept of price elasticity of demand is crucial for businesses in determining the impact of price changes on total revenue. In the case of inelastic demand, price increases tend to have a positive effect on total revenues, making the correct answer (c) Increase.