Figure 5-7Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

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BlackTom AI · Accepted Answer

To analyze this question, we start by noting the setup: the supply curve is fixed, and there is a rightward shift in demand causing the equilibrium price to rise from $6 to $7. The graph shows a downward-sloping demand line, with price on the vertical axis and quantity on the horizontal axis. With a fixed supply, the equilibrium quantity is determined where the fixed supply intersects the new demand curve; as demand increases, this intersection occurs at a higher price.

First, consider the behavior of total revenue (TR), which is TR = Price × Quantity. When price rises from $6 to $7 due to the demand increase, the corresponding quantity moves along the demand curve downward because higher prices reduce the quantity demanded, given the fixed supply.

Now compute the approximate quantities from the linear demand relationship shown in the graph. The demand line passes through (Q = 0, P = 100) and (Q = 50, P = 0), giving the linear equation P = 100 − 2Q. Solving for Q at P = 6 yields Q = (100 − 6)/2 = 47. Similarly, at P = 7, Q = (100 − 7)/2 = 46.5.

With P increasing to $7 and Q dropping to about 46.5, calculate TR before and after: initially, TR ≈ 6 × 47 = 282. After the change, TR ≈ 7 × 46.5 = 325.5. The total revenue increases because the percentage rise in price more than offsets the small drop in quantity along this demand curve when the supply is fixed.

Option review:
- If you hypothesized that TR would decrease, you’d be assuming the quantity drop dominates the price increase; however, the math along the fixed-supply, upward price movement shows TR rising in this specific demand setup.
- If you thought TR stayed the same, you’d need a precise 1:1 trade-off where a $1 price increase corresponds to exactly a 1 unit quantity decrease in a way that keeps P×Q constant, which isn’t supported by the linear demand shown here.
- If you posited that TR would decrease due to elastic considerations, you’d need to know the elasticity values; with the fixed-supply scenario and the given linear demand, the price rise is enough to push TR upward.

In summary, because the price increases from $6 to $7 and the corresponding quantity along the fixed-supply/demand setup falls only slightly (from about 47 to 46.5), the product P×Q increases, leading to higher total revenue for sellers.

Figure 5-7Refer to Figure 5-7. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

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