Exam question related to elastic and inelastic demand and supply.

For profits to increase, revenue must increase more then costs.

Lets look at revenue first. If you increase market share the quantity you sell must rise. To do this, decrease price. For revenue to increase, demand must be elastic ie a small price decrease increases demamd a lot so, on balance, revenue increases.

Looking at costs. You want supply to increase to meet demamd, but want this to happen without having to increase the price you pay by much. Therefore, demamd should be elastic too. Inelastic demand implied supply will change only in response to large changes in price.