A firm's demand curve, costs, and price elasticity of demand are all known. Calculate the effects of a price cut on revenue, cost, and profit.
Royersford Knitting Mills, Ltd., sells a line of women's knit underwear. The firm now sells about 20,000 pairs a year at an average price of $10 each. Fixed costs amount to $60,000, and total variable costs equal $120,000. The production department estimates that a 10 percent increase in output would not affect fixed costs but