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 selling at the same price, but increase the amount it produces.
B. Increase price, because if it increases price and demand is elastic, total revenue will increase.
C. Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve.
D. Reduce price, because if it reduces price and demand is elastic, total revenue will increase.


Answer: D

Economics

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Figure 7-10


depicts a demand curve with a price elasticity that is
a.
unitary, implying that a percent change in price leads to an equal percent change in quantity demanded.
b.
perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.
c.
equal to zero.
d.
both b and c.

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