Question

If a firm knows that the demand for its product is inelastic, it could generate more revenue by:

lowering the price, because the resulting change in sales would be relatively large.

raising the price, because the resulting change in sales would be relatively large.

lowering the price, because the resulting change in sales would be relatively small.

raising the price, because the resulting change in sales would be relatively small.

Answer 1

Answer is D. raising the price, because the resulting change in sales would be relatively small.

When price elastcity is less than one or inelastic change in quantity demanded is less than the change in price.

So when price increases decrease in quantity is relatively less so total revenue increases.

When price decreases increase in quantity is relatively less, so total revenue decreases when price decreases.

In case of elastic demand, increase in price decreases the total revenue and decrease in price increases total revenue.

So when demand is inleastic price should be risen to increase total revenue.

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