When demand for a product is very elastic and prices are increased, demand will ________.
A) remain the same, and operating profits will increase
B) remain the same, and operating profits may either increase or decrease
C) decrease, and operating profits will decrease
D) decrease, and operating profits may either increase or decrease

Question

Quizplus · Accepted Answer

When demand for a product is very elastic, an increase in price leads to a proportionally larger decrease in quantity demanded. This means demand will decrease, but the effect on operating profits depends on the extent of the decrease in demand and the new price level; profits may increase if the price increase more than offsets the decrease in demand, or decrease if it does not.

When Demand for a Product Is Very Elastic and Prices