The statement which explains why a firm would be interested in knowing the price elasticity of demand for a good it sells is:
A)the price elasticity of demand can be used to determine the impact of changes in income on quantity sold.
B)knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change.
C)knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit.
D)the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how sensitive the quantity of a good demanded is to changes in its price. Knowing the price elasticity of demand helps the firm to determine how changes in the price of the good will affect its total revenue, i.e., when demand is elastic, a small change in price will have a large effect on the quantity sold, and vice versa. This knowledge can help the firm to optimize its pricing strategy and maximize its profitability.

The Statement Which Explains Why a Firm Would Be Interested