Dominic sells pizza slices for $5 on the Santa Monica Pier. He currently sells 500 slices of pizza per day.This is a perfectly competitive business, and Dominic faces a perfectly price elastic demand curve. If he wants to try to increase daily revenues to $3,000, he should
A) raise the price of his pizza to $6 per slice and continue to sell 500 slices per day.
B) lower the price of his pizza to $4 per slice and try to sell 750 slices per day.
C) keep the price at $5 per slice and produce 600 slices per day.
D) do nothing since he can do nothing to increase revenue.

Question

Quizplus · Accepted Answer

In a perfectly competitive market with perfectly price elastic demand, increasing output is the only way to increase revenue since price cannot be changed. Selling 600 slices at $5 each would yield $3,000 in revenue.

Dominic Sells Pizza Slices for $5 on the Santa Monica