Asked by Shanda Mckinney on Jul 24, 2024
Verified
A firm is currently producing in the inelastic 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 inelastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase.
C) Increase price, because if it increases price and demand is inelastic, total revenue will increase.
D) Continue selling at the same price, but increase the amount it produces.
Inelastic Portion
The segment of the demand curve where consumers are relatively unresponsive to price changes.
Total Revenue
The total amount of money a firm receives from selling its products or services.
- Understand thoroughly the connection linking demand elasticity with total revenue.
- Recognize the section on the demand curve signaling the need for a firm to modify its pricing approach for revenue augmentation.
Verified Answer
TD
THE DR EXPERIENCE PODCASTJul 29, 2024
Final Answer :
C
Explanation :
When demand is inelastic, increasing the price leads to a smaller percentage decrease in quantity demanded, which results in an increase in total revenue.
Learning Objectives
- Understand thoroughly the connection linking demand elasticity with total revenue.
- Recognize the section on the demand curve signaling the need for a firm to modify its pricing approach for revenue augmentation.
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