Elasticity demand is an effective tool in the h... - JAMB Economics 1994 Question
Elasticity demand is an effective tool in the hands of a producer in that it enables him?
A
raise his profit and lower his costs
B
discourage buyers from cheating
C
determine what he will produce
D
set his price to maximize his profit
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Correct Option: D
Elasticity of demand helps a producer understand how changes in price will affect the quantity demanded of a product. This knowledge is crucial for making pricing decisions. By understanding the elasticity of demand, a producer can:
- Predict revenue changes: If demand is elastic, raising prices could significantly decrease quantity demanded, leading to lower total revenue. If demand is inelastic, raising prices might increase total revenue.
- Maximize profit: The producer can set prices strategically to maximize profit based on how consumers respond to price changes. Knowing the elasticity of demand allows the producer to find the price point that yields the highest profit.
Therefore, elasticity of demand is used to set prices to maximize profit.
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