Managers of firms with market power prefer a price elasticity of demand equal to compared to______ .

Question

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Managers of firms with market power prefer a price elasticity of demand equal to 1.05 to 1.10. This is because if the elasticity is too high, a small price increase would result in a large decrease in quantity demanded, leading to a decrease in revenue. On the other hand, if the elasticity is too low, a price increase would not lead to a significant increase in revenue. Therefore, a moderate elasticity of demand is preferred by managers of firms with market power. Option A, B, and D have elasticity values that are either too high or too low for the preferences of managers with market power.

Managers of Firms with Market Power Prefer a Price Elasticity