QUESTION 8

Consider a firm that sells a single product, wants to maximize profits, and faces a linear, downward sloping demand curve. Marginal cost is equal to $1. If the firm is setting its output level and price where demand elasticity is equal to -0.8, which of the following statements is true?

A) The firm is not maximizing profit and should lower the price.

B) The firm is not maximizing profit and should increase the price.

C) The firm is not maximizing profit and should choose the output level at which demand is unit-elastic.

D) The firm is not maximizing profit and should increase output.

E) The firm is maximizing profit and should change nothing.