Would a profit-maximizing firm sell where demand is inelastic?
A)No, this would not follow the rule of MC = MR.
B)No, the firm could not profitably raise price.
C)Yes, the firm could profitably lower price to attract sales.
D)Yes, in this case there are few substitutes for the good.

Question

Quizplus · Accepted Answer

A profit-maximizing firm would not sell where demand is inelastic because it would not follow the rule of marginal cost (MC) equaling marginal revenue (MR). Inelastic demand means that a price increase would lead to a proportionally smaller decrease in quantity demanded, thus increasing total revenue, but a profit-maximizing firm would seek to equate MC and MR, which typically occurs in the elastic portion of the demand curve.

Would a Profit-Maximizing Firm Sell Where Demand Is Inelastic