As the price elasticity of demand for an item increases,so does the firm's ability to mark up the price of the item above average cost.

Question

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The price elasticity of demand measures how sensitive the quantity demanded of an item is to its price. A higher price elasticity indicates that consumers are more sensitive to price changes, meaning that if a firm raises its prices, consumers are more likely to reduce their purchases or switch to alternatives. Therefore, as the price elasticity of demand increases, a firm's ability to mark up the price above average cost actually decreases, because consumers are less willing to accept higher prices without reducing their purchases.

As the Price Elasticity of Demand for an Item Increases,so