When a firm is on the inelastic segment of its demand curve, it can
A) increase total revenue by reducing price.
B) decrease total costs by decreasing price.
C) increase profits by increasing price.
D) increase total revenue by more than the increase in total cost by increasing price.

Question

Quizplus · Accepted Answer

When a firm is on the inelastic segment of its demand curve, it means that a change in price does not significantly affect the quantity demanded. Therefore, the firm can increase its profits by increasing the price without losing a significant amount of customers. This is because the increase in revenue from the higher price will more than compensate for the reduction in quantity demanded, leading to higher profits. Conversely, reducing the price on the inelastic segment will not result in a significant increase in quantity demanded and could hurt profits.

When a Firm Is on the Inelastic Segment of Its