Allegiant Air holds a natural monopoly on most of the routes it serves in the United States.Allegiant Air ________ operate on the ________ portion of its demand curve when total revenue is ________.
A) will always; elastic; increasing
B) will usually; elastic; decreasing
C) will never; elastic; increasing
D) will always; inelastic; increasing
E) will never; inelastic; increasing

Question

Quizplus · Accepted Answer

Allegiant Air, like any profit-maximizing firm, will always operate on the elastic portion of its demand curve when total revenue is increasing because this is where a decrease in price leads to a proportionally larger increase in quantity demanded, thus increasing total revenue. Operating on the inelastic portion would mean that a decrease in price leads to a smaller proportionate increase in quantity demanded, which would not maximize revenue.

Allegiant Air Holds a Natural Monopoly on Most of the Routes