1. In the discussion of elasticity and raising and lowering prices, the text sta

Question

1. In the discussion of elasticity and raising and lowering prices, the text states that if you have an elastic demand, you should hesitate to raise your price, and that lowering price can possibly increase profits (total revenue minus total cost). Why is the word possibly used?

8.How does the shift in demand affect the profitability of producers?

A. Lowering price will increase output and hence increase costs. Sellers are interested in profits, not total revenue, so the effect of increasing output on costs must also be taken into account. B. Lowering price will drive some firms out of the market because they cannot afford to offer the new lower price. For these firms, profits are drastically reduced. C. Lowering price can lead to a much lower elasticity of demand. In these cases, lowering price will lead to lower revenue and hence lower profits. D. Lowering price means that firms will have to lower wages for its workers, threatening a strike and a stop in production.

Explanation / Answer

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