21. Which of the following statements about prices and profit is true? A) Higher
ID: 2634751 • Letter: 2
Question
21.
Which of the following statements about prices and profit is true?
A)
Higher prices always lead to higher profits.
B)
Higher prices always lead to lower demand and lower profits.
C)
Higher prices combine with lower quantity demanded to change the level of profits.
D)
Higher prices will be offset by lower demand so profits will stay constant.
21.
Which of the following statements about prices and profit is true?
A)
Higher prices always lead to higher profits.
B)
Higher prices always lead to lower demand and lower profits.
C)
Higher prices combine with lower quantity demanded to change the level of profits.
D)
Higher prices will be offset by lower demand so profits will stay constant.
Explanation / Answer
A) Higher prices always lead to higher profits- is not always true. If there are alternative products available the demand shall fall and the concern cannot accumulate higher profits due to higher prices.
B) Higher prices always lead to lower demand and lower profits- is not true as this situation will not hold good if there are no alternatives available.
C) Higher prices combine with lower quantity demanded to change the level of profits - is true because the general reaction towards a price rise is that the demand tends to get lower. Hence if the demand falls the level of profits change.
D) Higher prices will be offset by lower demand so profits will stay constant - not true as the level of demand might be different.
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