If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:
A) raise prices 1 percent.
B) lower prices 1 percent.
C) raise prices until the elasticity becomes very high.
D) keep the price where it is.

Question

Quizplus · Accepted Answer

When the price elasticity of demand is equal to one, it means that a 1% change in price will result in a 1% change in quantity demanded. Therefore, the firm should keep the price where it is to maximize revenue. If the firm were to raise or lower prices, it would result in a decrease in total revenue.

If a Revenue-Maximizing Firm Is Told That the Price Elasticity