When demand is strong, firms usually increase markups.

Question

Quizplus · Accepted Answer

When demand for a good or service is strong, firms often have the ability to increase their prices without losing customers. This can lead to an increase in markups, or the difference between the cost to produce a good and the price at which the firm sells the good. However, it is important to note that not all firms will necessarily increase markups in response to strong demand, as some may choose to keep prices stable in order to maintain customer loyalty and reputation.

When Demand Is Strong, Firms Usually Increase Markups