AP MicroeconomicsElasticity
Total Revenue and the Linear Demand Curve
Along a straight-line demand curve, total revenue rises in the elastic upper half, peaks at the unit-elastic midpoint, and falls in the inelastic lower half.
On a linear demand curve elasticity is not constant: it is elastic at high prices/low quantities (upper left), unit elastic at the midpoint, and inelastic at low prices/high quantities (lower right). As price falls from the top, total revenue increases while demand is elastic, reaches its maximum exactly where demand is unit elastic (and marginal revenue equals zero), then decreases as demand becomes inelastic. This gives the familiar hump-shaped total-revenue curve and pinpoints the revenue-maximizing price.
Formula / Example
TR maximized at the midpoint of linear demand, where |E_d| = 1 and MR = 0.