A Firm Is Currently Producing in the Elastic Portion of Its

question 72

Multiple Choice

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.

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Definitions:

Opportunity Cost

The amount of other products that must be forgone or sacrificed to produce a unit of a product.

Tax Return

A form filed with a government body to report income, expenses, and other relevant financial information, used to assess tax liability.

Diminishing Marginal Returns

A principle in economics where each additional unit of input results in a smaller increase in output after a certain point, common in production processes.