If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:
A) raise prices 1 percent.
B) lower prices 1 percent.
C) raise prices until the elasticity becomes very high.
D) keep the price where it is.
E) lower prices until the elasticity becomes very high.

Question

Quizplus · Accepted Answer

If the price elasticity of demand is equal to one, the firm is already charging the optimal price at which its revenue is maximized. Any changes in price, either increase or decrease, would result in a decrease in total revenue. Therefore, the firm should keep the price where it is.

If a Revenue-Maximizing Firm Is Told That the Price Elasticity