A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue?
A) Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase.
C) Increase price, because if it increases price and demand is inelastic, total revenue will increase.
D) Continue selling at the same price, but increase the amount it produces.

Question

Quizplus · Accepted Answer

When demand is inelastic, increasing the price leads to a smaller percentage decrease in quantity demanded, which results in an increase in total revenue.

A Firm Is Currently Producing in the Inelastic Portion of Its