Firms like to know the price elasticity of demand because it determines how price changes affect
A) the supply curve.
B) costs.
C) revenues.
D) taxes.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. This means that by knowing the price elasticity of demand, firms can understand how changes in price will affect revenues. If demand is elastic, then a small change in price will have a big impact on the quantity demanded, leading to a larger change in revenues. If demand is inelastic, then a change in price will have a smaller impact on quantity demanded, leading to a smaller change in revenues. Therefore, knowing the price elasticity of demand is important for a firm to make pricing decisions that maximize profits.

Firms Like to Know the Price Elasticity of Demand Because