If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue?
A)The point nearest the vertical axis, where the price is highest.
B)The point nearest the horizontal axis, where quantity demanded is greatest.
C)One of the points higher up on the demand curve, where demand is elastic.
D)One of the points lower down on the demand curve, where demand is inelastic.
E)The point of unit elasticity, in the middle of the demand curve.

Question

Quizplus · Accepted Answer

At the point of unit elasticity, total revenue is maximized because the percentage change in quantity demanded equals the percentage change in price, resulting in no change in total revenue.

If the Sellers in the Cigarette Industry Formed a Cartel