Total Revenue Test

What is a 'Total Revenue Test'

A total revenue test is a test that approximates the price elasticity of demand by comparing the change in total revenue as a result of changing the product price. The total revenue test assumes all other factors that may influence revenue will remain constant during the testing period.

BREAKING DOWN 'Total Revenue Test'

The total revenue test can provide valuable information for a company. Determining whether a product is elastic or inelastic can help a firm maximize revenue. If the test concludes that a good is elastic, the company will be very cautious about price changes, as small changes will produce large decreases in demand. Alternatively, if the good is inelastic, the firm will know that increases in price will only yield small changes in the quantity demanded. Knowing whether a good is inelastic or elastic will allow a firm to avoid costly pricing mistakes.

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RELATED FAQS
  1. Under what circumstances might price elasticity significantly change?

    Discover under what circumstances price elasticity of demand might change and why it is such an important economic concept ... Read Answer >>
  2. If a particular good's price elasticity is high, does this mean the supplier should ...

    Learn the basics of price elasticity of supply and demand and how each influences a company's production of goods and pricing ... Read Answer >>
  3. What is the difference between inelasticity and elasticity of demand?

    Find out how elasticity of demand and inelasticity of demand are two sides of the same coin, based on the calculated elasticity ... Read Answer >>
  4. How does price elasticity change in relation to supply and demand?

    Learn about how variations in price elasticity affect the supply and demand curves and what factors cause differences in ... Read Answer >>
  5. What are some examples of demand elasticity other than price elasticity of demand?

    Learn about income elasticity of demand and cross elasticity of demand and how to interpret these two measures of demand ... Read Answer >>
  6. How do you quantify price elasticity?

    Learn how to calculate the coefficient for price elasticity, enabling you to approximate how sensitive supply and demand ... Read Answer >>
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