If price increases by 15% and quantity sold decreases by 10%, what is the approximate net percent change in revenue, assuming linear response?

If price increases by 15% and quantity sold decreases by 10%, what is the approximate net percent change in revenue, assuming linear response?

• A. -3.5%
• B. 0%
• C. 3.5%
• D. 15%

Answer: (C)

Revenue is price times quantity, so when price rises by 15% the revenue scale becomes 1.15, and when the quantity sold falls by 10% the revenue scale becomes 0.90. Apply both changes to the same baseline: 1.15 × 0.90 = 1.035. That means the revenue is 1.035 times the original, i.e., a 3.5% increase. This shows how the two effects combine multiplicatively rather than simply adding.

Revenue is price times quantity, so when price rises by 15% the revenue scale becomes 1.15, and when the quantity sold falls by 10% the revenue scale becomes 0.90. Apply both changes to the same baseline: 1.15 × 0.90 = 1.035. That means the revenue is 1.035 times the original, i.e., a 3.5% increase. This shows how the two effects combine multiplicatively rather than simply adding.