Asked by Rachel Gallo on May 13, 2024
Verified
When a firm is on the inelastic segment of its demand curve,it can:
A) increase total revenue by reducing price.
B) decrease total costs by decreasing price.
C) increase profits by increasing price.
D) increase total revenue by more than the increase in total cost by increasing price.
Inelastic Segment
A portion of the demand curve where consumers are relatively unresponsive to price changes, resulting in a steep slope.
Total Revenue
The entirety of income generated by a business from its selling activities, reflecting the aggregate price at which goods or services were sold times the total unit sold.
Total Costs
The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.
- Distinguish between elastic and inelastic segments of the demand curve and their implications for revenue and pricing.
Verified Answer
MC
Matthew ColvinMay 17, 2024
Final Answer :
C
Explanation :
On the inelastic segment of its demand curve, the firm can increase profits by increasing price because the increase in price will be followed by a smaller decrease in quantity demanded, resulting in an increase in total revenue. This increase in revenue will more than cover the increase in total cost, leading to an increase in profits. Reducing price may increase total revenue, but it will not necessarily increase profits as the increase in revenue will be offset by the decrease in price. Decreasing price will also not decrease total costs.
Learning Objectives
- Distinguish between elastic and inelastic segments of the demand curve and their implications for revenue and pricing.