During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20.Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would
A)increase prices.
B)decrease prices.
C)leave prices unchanged.
D)need more-detailed market information before making any pricing changes.
E)diversify into selling Karen Carpenter LPs.

Question

Quizplus · Accepted Answer

Since the price elasticity of demand is greater than 1, a decrease in price would lead to an increase in total revenue, resulting in higher profits for the seller.

During the Height of the Pet Rock Craze in the 1970s