Note: Please ignore the minus sign in front of the elasticity numbers. This post refers to the the link between Total Revenue (TR) and the elastic part of the demand curve.
As shown in the figure, the elasticity in the upper part of the demand curve, between the horizontal intercept and the midpoint of the demand line is the area where the elasticity is less than -1 (or greater than +1). At the midpoint the elasticity is = 1, and this is where TR is maximized (i.e. where MR=0).
To the right of the midpoint, on the lower part of the demand curve, elasticity is greater than -1 (or less than +1). In this area TR is falling as the price falls.Firms should never willingly operate in the inelastic part of their demand curves. By producing less they can increase revenues so, by definition, profits would be higher. Firms will not operate where we have unit elasticity unless there are no costs of production.
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