In a perfectly competitive market, how would firms optimize resource allocation to achieve maximum profit when faced with varying elasticity of demand?

In a perfectly competitive market, firms aim to maximize their profits by efficiently using their resources based on the demand for their products. When demand is elastic, a small change in price leads to a large change in the quantity demanded, so firms should lower prices slightly to sell more and increase total revenue. Conversely, if demand is inelastic, lowering prices may not significantly increase sales, so firms might maintain or slightly increase prices to maximize profits. For example, if a bakery sees that customers buy much more bread when prices drop, it can produce more bread at a lower price to take advantage of that demand. By continually adjusting their production and pricing strategies based on how customers respond, firms can optimize their resource allocation and achieve maximum profit.