If a ﬁrm faces a relatively inelastic demand curve, an increase in supply is likely to _____.
A) lead to an increase in both output and price
B) lead to a fall in both output and price
C) lead to a decrease in total revenue
D) cause a more-than-proportionate increase in demand

Question

Quizplus · Accepted Answer

When demand is inelastic, an increase in supply will lead to a decrease in price, but the percentage decrease in price will be smaller than the percentage increase in quantity, leading to a decrease in total revenue.

If a ﬁRm Faces a Relatively Inelastic Demand Curve, an Increase