Answer to Question #70057 in Economics of Enterprise for Melvin Muleya

Question

a) Assuming you are a manager of a beverage manufacturing company and you are operating in a non-competitive market were your firms total cost of production is zero. Indicate what you as the manager must do (cut or raise production) to raise revenue when ;
I. Price elasticity of demand is elastic
II. Price elasticity of demand is inelastic
III. Price elasticity of demand is unit elastic
b) Suppose you decide to produce a drink and you discover it has a demand function given by

Answer 1

a)
I. Price elasticity of demand is elastic - cut production,
II. Price elasticity of demand is inelastic - raise production,
III. Price elasticity of demand is unit elastic - any change will have no effect.
b) The question is incomplete, so it can't be answered without additional information.