Holding all other things constant, if the price elasticity of demand increases (i.e., becomes more negative), then the markup under the economists' approach to pricing will:
A)increase.
B)decrease.
C)remain the same.
D)The effect cannot be determined.

Question

Quizplus · Accepted Answer

The economists' approach to pricing involves setting a markup equal to the inverse of the price elasticity of demand. Therefore, if the price elasticity of demand becomes more negative (i.e., more responsive to price changes), the markup must decrease in order to maintain the same level of profit.

Holding All Other Things Constant, If the Price Elasticity of Demand