A firm is currently producing in the elastic portion of its demand curve. What c

Question

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.

Explanation / Answer

In the elastic portion of a demand curve, consumers will increase the amount they consume if they price decreases. Reducing price and increasing total consumption, total revenue will increase.

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