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    I'm currently revising for Edexcel Unit 1, and there's something I don't get but the answer's probably really obvious.

    Say the demand for a good is elastic. A firm supplying that good faces rising production costs. The book says that the firm would shift its supply in but I don't get why? Surely if demand is elastic then the shift inwards of supply would cause revenue to be lost as the increase in price causes a greater decrease in quantity demanded.

    Am I missing something obvious?
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    (Original post by Afewgoodpens)
    I'm currently revising for Edexcel Unit 1, and there's something I don't get but the answer's probably really obvious.

    Say the demand for a good is elastic. A firm supplying that good faces rising production costs. The book says that the firm would shift its supply in but I don't get why? Surely if demand is elastic then the shift inwards of supply would cause revenue to be lost as the increase in price causes a greater decrease in quantity demanded.

    Am I missing something obvious?
    They reduce supply as they are facing rising production costs. The effect of reducing supply is the loss in revenue, if that makes sense.
 
 
 
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