Which of the following statements is true?
A) The more elastic the demand, the higher the profit-maximizing markup.
B) The more elastic the demand, the lower 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

The profit-maximizing markup is higher for less elastic demand because the seller can increase the price without causing a significant decrease in demand. Conversely, if the demand is more elastic, the seller cannot increase the price so much since it would cause a significant decrease in demand. Therefore, the more elastic the demand, the lower the profit-maximizing markup.

Which of the Following Statements Is True