Which of the following statements is true?
A)The more elastic the demand, the higher is the profit-maximizing markup.
B)The more elastic the demand, the lower is the profit-maximizing markup.
C)The higher the marginal cost, the lower the profit-maximizing price.
D)The higher the average cost, the lower the profit-maximizing price.

Question

Quizplus · Accepted Answer

When demand is more elastic, the firm cannot raise the price too high without losing too many customers, so the profit-maximizing markup will be lower. Marginal cost affects the profit-maximizing quantity, not the price. Average cost is not directly related to the profit-maximizing price.

Which of the Following Statements Is True