The price elasticity of demand for fresh tomatoes has been estimated to be 2.22.If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop,how will that affect total revenue from fresh tomatoes,all other things unchanged?

A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.

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joseph lebea · Accepted Answer

Final Answer : C, Explanation :  With a price elasticity of demand of 2.22, a 20% increase in the fresh tomato crop will lead to a roughly 44% decrease in the price of fresh tomatoes (20% increase in supply * 2.22 elasticity = 44% decrease in price). However, the greater quantity sold will increase total revenue. The increase in quantity sold will offset the decrease in price, resulting in an overall increase in total revenue. Therefore, total revenue will rise.

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