Question

A firm has a choice of raising or lowering its price. If the firm wishes to increase the revenues (the price times the quantity sold), what should it do?a. Raise price when demand is elastic, because the quantity demanded will increaseb. Lower price when demand is elastic, because the quantity demanded will decreasec. Raise price when demand is inelastic, because the revenue gained from the price increase will be larger than the revenues lost from the smaller quantity soldd. Lower price when demand is inelastic, because the revenues lost from the lower price will be smaller than the revenues gained from the increase in quantity sold.

Answer 1

The correct answer is option c.

Step-by-step explanation:

In order to increase the revenue, the firm should increase the price when the demand is inelastic. Inelastic demand means that a change in price will cause a less proportionate change in quantity demanded.

So when the price is increased it will lead to a less proportionate decrease in the quantity demanded. As a result, the total revenue will increase.