Which of the following firms caould raise prices and expect an increase in revenues?
A)a firm product has an elasticity of 1
B)a firm whose product has an elasticity of 0.31
C)a firm whose product has an elasticity of 3.1
D)all firms regardless of the elasticity of their products
a firm whose product has an elasticity of 0.31
To determine which firm could raise prices and expect an increase in revenues, we need to consider the concept of price elasticity of demand. Price elasticity of demand measures the responsiveness of the quantity demanded of a product to a change in its price.
The general rule is that a firm can raise prices and expect an increase in revenues if the demand for its product is inelastic, meaning that changes in price have a relatively small impact on the quantity demanded. On the other hand, if the demand for a product is elastic, meaning that changes in price have a relatively large impact on the quantity demanded, raising prices may lead to a decrease in revenues.
Let's analyze each option:
Option A - A firm whose product has an elasticity of 1:
A price elasticity of 1 indicates unitary elasticity, meaning that a 1% increase in price would result in a 1% decrease in quantity demanded. In this case, raising prices would not lead to an increase in revenues.
Option B - A firm whose product has an elasticity of 0.31:
A price elasticity of 0.31 indicates inelastic demand, meaning that a 1% increase in price would result in a less than 1% decrease in quantity demanded. In this case, raising prices could lead to an increase in revenues.
Option C - A firm whose product has an elasticity of 3.1:
A price elasticity of 3.1 indicates elastic demand, meaning that a 1% increase in price would result in a more than 1% decrease in quantity demanded. In this case, raising prices would likely lead to a decrease in revenues.
Option D - All firms regardless of the elasticity of their products:
This option is incorrect since not all firms can raise prices and expect an increase in revenues. The elasticity of demand plays a crucial role in determining the impact of price changes on revenues.
Therefore, the correct answer is Option B - a firm whose product has an elasticity of 0.31.