Which of the following determines a firm's revenue when it changes the price of its product?
A)the firm's cost function
B)the elasticity of the firm's total product curve
C)the plant size used by the firm in the long run
D)the price elasticity of demand for the firm's product
E)the price elasticity of supply

Question

Quizplus · Accepted Answer

When a firm changes the price of its product, the revenue it earns will depend on the price elasticity of demand for the product. This is because the price elasticity of demand measures the responsiveness of the quantity demanded to changes in the product's price. If the demand for a product is elastic, then a price increase will lead to a decrease in the quantity sold and a decrease in revenue. Conversely, if demand is inelastic, then a price increase will lead to a smaller decrease in quantity sold and an increase in revenue. Therefore, the price elasticity of demand is the key determinant of a firm's revenue when it changes the price of its product.

Which of the Following Determines a Firm's Revenue When It