The Producer of Good X Is Contemplating a Price Change

question 161

Multiple Choice

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to

• A)increase the price of good X to raise total revenue.
• B)decrease the price of good X to raise total revenue.
• C)leave the price of good X unchanged since it will not influence total revenue.
• D)increase the price of good X to reduce total revenue.

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Definitions:

Open Market

An economic system in which prices for goods and services are determined by unrestricted competition between privately owned businesses.

Stockholders

Individuals or entities that own shares in a corporation, thereby having an ownership interest in the company.

Stock Repurchase

When a company buys back its own shares from the marketplace, reducing the amount of outstanding stock on the open market.

Dividend

A portion of a company's earnings distributed to shareholders, usually in the form of cash or additional stocks.