CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

On a linear demand curve, maximum total expenditure occurs when demand is ______.

A. elastic
B. unit-elastic
C. inelastic
Correct Answer: B

User Contributed Comments 3

User Comment
maryprz14 Can someone explain this please?
xemex131 maryprz14: when demand is inelastic, the firm is stronger, so the firm will keep raising the prices and increase revenue until the elasticity becomes greater than one. Similarly, when the demand is elastic, the consumer is stronger, hence a firm will keep lowering the prices and increase revenue until the elasticity becomes one. Check exhibit 16 in reading 14 in the curriculum if this is still not clear.
gc1210 @Xemex131, I think you meant Exhibit 4 in Reading 14 section 2.2.3 Elasiticity and Total Expenditure.
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