Question on: JAMB Economics - 1994
A
rise his profits 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: A
Elasticity of demand measures the responsiveness of quantity demanded to a change in price. A producer can use this knowledge to set prices strategically.
- Understanding Elasticity: If demand is elastic (sensitive to price changes), a producer might lower prices to increase total revenue (even though the price per unit is lower, the increase in quantity sold can offset it). If demand is inelastic (not sensitive to price changes), a producer might raise prices to increase total revenue (as the decrease in quantity demanded will be relatively smaller).
- Profit Maximization: By understanding how price changes affect demand, a producer can set a price that will maximize their profit.
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