What is the likely effect on total revenue when a company experiences a significant price increase with an elasticity greater than 1?

When a company increases its prices and the product has an elasticity greater than 1, it indicates that demand for the product is elastic. This means that consumers are relatively sensitive to price changes. Specifically, a price elasticity of demand greater than 1 suggests that the percentage change in quantity demanded is greater than the percentage change in price.

As a result of a significant price increase, the quantity demanded will decrease significantly. Since the loss in revenue from the decrease in quantity sold outweighs the gain in revenue per unit sold due to the higher price, total revenue will decrease. This relationship is a critical concept in understanding how price changes interact with consumer behavior and overall sales, particularly for products that are considered elastic in nature.

In this scenario, the outcome of the price increase directly leads to a decrease in total revenue, which aligns with the interpretation of elastic demand.