The larger the price elasticity of demand, the ______the profit- maximizing price and the______ the markup.

Question

Quizplus · Accepted Answer

The larger the price elasticity of demand, the more sensitive consumers are to price changes. This sensitivity means that to maximize profits, firms should set lower prices to encourage more sales. Additionally, because consumers are more responsive to price changes, the markup over cost should also be smaller to avoid reducing demand significantly.

The Larger the Price Elasticity of Demand, the ______The Profit-