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Reduces total production cost and raise revenue-profit

Assume that Joe discovers the price elasticity of market demand to be 0.8 for Joe’s additional fancy dehydrated water at the present price of $10 per barrel. Every barrel averages $2 to generate. Joe can: (w) increase his profits by 80% if he increases output by 10 percent. (x) reduce total production costs and increase revenues and profits by increasing the price he charges. (y) probably gain through expanding production through a horizontal merger along with other producer of dehydrated water. (z) reduce average total costs to $1.20 per barrel via exploiting economies of scale.

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