If the unit sales for one product are more sensitive to price increases than another product, then its markup over variable cost should be less than for the other product if the company wants to maximize profit.

Question

Quizplus · Accepted Answer

If the unit sales for one product are more price sensitive, it means that increasing the price of the product will lead to a significant decrease in demand. Therefore, in order to maximize profit, the markup over variable cost for this product should be less than the markup for the other product which is less price sensitive. This allows the company to keep the price of the more price sensitive product lower and attract more customers, ultimately resulting in higher profits.

If the Unit Sales for One Product Are More Sensitive