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SSC CPO 2025 PYQ — Question 99

SSC CPO - 11 Dec 2025 - Shift 1 • General Awareness • Q99

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When is total revenue maximized in relation to elasticity?

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Correct answer: B

Explanation

Answer: (2) When elasticity equals one.

Explanation:

There is a profound relationship between the Price Elasticity of Demand (Ed) and Total Revenue (TR). When the elasticity of demand for a good is equal to unity (Ed = 1), Total Revenue reaches its maximum at that point. The reason for this is that, in this scenario, the percentage change in price is exactly equal to the percentage change in demand; consequently, total revenue remains stable and attains its highest level.

If elasticity is greater than unity (Ed > 1), Total Revenue increases as the price decreases. Conversely, if elasticity is less than unity (Ed < 1), Total Revenue decreases as the price decreases. The relationship between Marginal Revenue (MR) and elasticity can also be understood through the following formula:

 

When Ed = 1, then MR = 0. According to economic principles, Total Revenue (TR) is maximized precisely when Marginal Revenue is zero.

Factual Data: Alfred Marshall elucidated this relationship through the 'Total Expenditure Method.'

Figure for the explanation of question 99

Additional Points:

Option 1 (Ed > 1): This is termed 'Elastic Demand.' In this case, a slight reduction in price leads to a significant increase in revenue (typically observed in luxury goods).

Option 3 (Ed < 1): This is termed 'Inelastic Demand.' Here, Total Revenue may increase even when the price rises, as the demand does not contract significantly (typically observed in essential goods such as salt or medicines).

Option 4 (MC = MR): This condition signifies 'Producer's Equilibrium,' rather than merely the maximization of Total Revenue.

Potential Exam Questions and Answers:

Question: When Marginal Revenue (MR) is zero, what is the elasticity of demand?

Answer: Equal to unity (Ed = 1). Question: Who propounded the 'Total Expenditure Method' for measuring the elasticity of demand?

Answer: Alfred Marshall.

Question: If the demand for a commodity is perfectly inelastic (Ed = 0), what will be the shape of the demand curve?

Answer: A straight vertical line parallel to the Y-axis.