Suppose the first graph represents the total revenue curve for Marilyn's Magnificent. If the total revenue curve is upward sloping and then flattens out as output increases, what does this indicate about the price elasticity of demand for Marilyn's product as output increases?

• A. Demand is perfectly inelastic throughout all levels of output.
• B. Demand is inelastic at low levels of output and becomes elastic as output increases.
• C. Demand is elastic at low levels of output and becomes inelastic as output increases.
• D. Demand is perfectly elastic throughout all levels of output.

Answer: (C)

Verified step by step guidance

1. Understand that the total revenue (TR) curve shows the relationship between total revenue and quantity sold (output).
2. Recall that the slope and shape of the TR curve relate to the price elasticity of demand (PED). Specifically, when TR is increasing, demand is elastic; when TR is at its maximum (flattens out), demand is unit elastic; and when TR is decreasing, demand is inelastic.
3. Analyze the given TR curve description: it is upward sloping initially, meaning total revenue increases as output increases, indicating elastic demand at low output levels.
4. Note that the TR curve flattens out as output increases, which means total revenue stops increasing and reaches a maximum, indicating demand becomes unit elastic at that point.
5. Since the TR curve does not decline but flattens, beyond that point demand becomes inelastic as further increases in output do not increase total revenue.