To maximize profits, firms should always charge a higher price in the market with the more elastic demand.

Question

Quizplus · Accepted Answer

This statement is false. In a market with more elastic demand, buyers are more sensitive to price changes, meaning that increasing the price will lead to a greater reduction in quantity demanded. As a result, firms may actually make more profit by charging a lower price in a market with more elastic demand in order to attract a larger customer base. In markets with less elastic demand, consumers are less likely to change their buying behavior in response to price changes, so firms can charge a higher price without losing as many customers.

To Maximize Profits, Firms Should Always Charge a Higher Price