A firm with a downward-sloping demand curve increases its output from Q1 to Q2, which requires lowering the price from P1 to P2 for all units sold. This change in sales strategy creates two distinct effects on total revenue, which can be visualized as rectangular areas on a price-quantity graph.
- Area X is a rectangle with a height of (P1 - P2) and a width of Q1.
- Area Y is a rectangle with a height of P2 and a width of (Q2 - Q1).
Which statement correctly identifies the economic meaning of Area X and Area Y in terms of the change in total revenue?
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A firm with a downward-sloping demand curve increases its output from Q1 to Q2, which requires lowering the price from P1 to P2 for all units sold. This change in sales strategy creates two distinct effects on total revenue, which can be visualized as rectangular areas on a price-quantity graph.
- Area X is a rectangle with a height of (P1 - P2) and a width of Q1.
- Area Y is a rectangle with a height of P2 and a width of (Q2 - Q1).
Which statement correctly identifies the economic meaning of Area X and Area Y in terms of the change in total revenue?
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