Asked by Jalen Taylor on Jul 09, 2024
Verified
A firm is currently producing in the elastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue?
A) Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is elastic, total revenue will increase.
C) Increase price, because if it increases price and demand is elastic, total revenue will increase.
D) Continue selling at the same price, but increase the amount it produces.
Elastic Portion
A range in the demand or supply curve where a small change in price leads to a large change in the quantity demanded or supplied.
Total Revenue
Total Revenue refers to the total amount of money generated by a business from the sale of its goods or services before any costs are deducted.
- Understand the relationship between demand elasticity and total revenue.
- Identify the segment of the demand curve where a firm should change its pricing strategy to increase revenue.
Verified Answer
DP
Doan Phi HoangJul 14, 2024
Final Answer :
B
Explanation :
When demand is elastic, reducing the price will lead to a proportionally larger increase in quantity demanded, which increases total revenue.
Learning Objectives
- Understand the relationship between demand elasticity and total revenue.
- Identify the segment of the demand curve where a firm should change its pricing strategy to increase revenue.
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