To maximize sales revenue, an oligopolist will expand output until the elasticity of demand becomes
A)negative.
B)zero.
C)one.
D)infinite.

Question

Quizplus · Accepted Answer

An oligopolist will expand output until the elasticity of demand becomes one because this is the point where the total revenue is maximized. At this point, the increase in revenue from selling additional units of the good is exactly offset by the decrease in revenue from the decrease in price caused by the increase in output. If the elasticity of demand is less than one, the increase in revenue from selling additional units is greater than the decrease in revenue from the decrease in price, so the oligopolist should continue to expand output. If the elasticity of demand is greater than one, the increase in revenue from selling additional units is less than the decrease in revenue from the decrease in price, so the oligopolist should reduce output.

To Maximize Sales Revenue, an Oligopolist Will Expand Output Until