When there is a capacity constraint,
A)firms face sunk costs when deciding whether or not to expand.
B)consumers will avoid the producer and go with a firm that has extra capacity.
C)firms are not maximizing their profits during high season.
D)firms can use peak-load pricing to increase profits during periods of high demand.

Question

Quizplus · Accepted Answer

When there is a capacity constraint, firms can use peak-load pricing to increase profits during periods of high demand. This means charging higher prices during periods of high demand to increase revenue and cover the costs of expanding capacity. This allows firms to maximize profits even during periods of high demand while still operating within their capacity constraints.

When There Is a Capacity Constraint