If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could
A)survey competitors and ask them what they think demand elasticity is for the product.
B)talk to its customers.
C)change price a little bit and observe what happens to total revenue.
D)not do anything as there is no way to find an elasticity value.

Question

Quizplus · Accepted Answer

The best way for a firm to determine the elasticity of their product is through changing the price and observing the change in total revenue. If a small change in price results in a large change in total revenue, demand is elastic. If a change in price results in a proportional change in revenue, demand is unit elastic. If a change in price results in a small change in total revenue, demand is inelastic. Options A and B do not provide direct information about demand elasticity and option D is incorrect as there are ways to calculate elasticity, such as using historical data or market research.

If a Firm Wanted to Know Whether the Demand for Its