Answer: The company has a fragmented consumer base

## Explanation Total revenue (TR) is calculated as Price × Quantity. When a company raises prices, the effect on total revenue depends on the price elasticity of demand: - **Price elastic demand** (elasticity > 1): When price increases, quantity demanded decreases by a larger percentage than the price increase, leading to a decrease in total revenue. - **Price inelastic demand** (elasticity < 1): When price increases, quantity demanded decreases by a smaller percentage than the price increase, leading to an increase in total revenue. Let's analyze each option: **A. The company's products are price elastic** - This would lead to a decrease in total revenue when prices are raised, as consumers are highly responsive to price changes. **B. The company is in a competitive industry** - In competitive industries, products typically have many substitutes, making demand more elastic. Raising prices in such an environment would likely decrease total revenue as consumers switch to competitors. **C. The company has a fragmented consumer base** - A fragmented consumer base suggests that the company has market power or faces less competition, which often means demand is less elastic (more inelastic). When demand is inelastic, raising prices increases total revenue because the percentage decrease in quantity demanded is smaller than the percentage increase in price. **Key economic principles:** - **Price elasticity of demand** measures the responsiveness of quantity demanded to price changes - **Total revenue test**: If price and total revenue move in the same direction, demand is inelastic; if they move in opposite directions, demand is elastic - **Factors affecting elasticity**: Availability of substitutes, necessity vs. luxury goods, proportion of income spent, and time horizon Therefore, option C is correct because a fragmented consumer base typically indicates less competition and more inelastic demand, allowing the company to increase total revenue by raising prices.

Author: LeetQuiz .