Exhibit 9-3 At the profit-maximizing quantity, the demand curve facing the firm in Exhibit 9-3 is
A)perfectly elastic
B)price elastic
C)price inelastic
D)unit elastic
E)perfectly inelastic

Question

Exhibit 9-3  At the profit-maximizing quantity, the demand curve facing the firm in Exhibit 9-3 is
A)perfectly elastic 
B)price elastic 
C)price inelastic 
D)unit elastic 
E)perfectly inelastic

Quizplus · Accepted Answer

The profit-maximizing quantity is where marginal revenue equals marginal cost. At this quantity, the demand curve facing the firm will be price elastic, meaning that a small change in price will cause a relatively larger change in quantity demanded. This is because consumers have many close substitutes available to them and can easily switch to a different supplier if the firm raises its price. Therefore, choice B is correct. Choices A, C, D, and E are incorrect because they describe different types of demand curves that would not be consistent with profit maximization at the given quantity.

Exhibit 9-3 at the Profit-Maximizing Quantity, the Demand Curve