After a producer determines that the demand for one of its products is inelastic, why would this firm probably raise the price of this product?

Question

The firm’s costs of production would probably decrease.

Consumer demand would probably increase.

The firm’s total revenues would probably increase.

Competition would decrease.

Answer 1

If a producer determines that the demand for one of its products is inelastic, the most likely reason for raising the price of that product is:

The firm’s total revenues would probably increase.

Inelastic demand means that consumers are not very responsive to price changes; that is, even if the price rises, the quantity demanded will not decrease significantly. Since the firm can raise its prices without losing a substantial number of customers, it can increase its total revenues by opting to charge higher prices.