12 Questions
A high elasticity of demand suggests that a small price cut results in a small volume increase.
False
Elastic markets are characterized by an elasticity of demand greater than one (1).
True
Every time a price change is contemplated, volume hurdles should be the last line of analysis.
False
Volume hurdles are irrelevant for marginal price change decisions.
False
Elasticity of demand measures the changes in volume delivered with a change in price.
True
Raising prices to cover fixed costs is justified from a profit maximization viewpoint.
False
Inelastic markets tend to favor price decreases to improve profitability.
False
Executives can use elasticity of demand to predict the expected volume change from a price change.
True
A measured elasticity of demand below one indicates elastic markets.
False
Inelastic markets are characterized by a large change in price having a large effect on quantity sold.
False
Volume hurdles provide the final word on pricing decisions.
False
An increase in volume associated with a price reduction will always improve profitability.
True
Learn about the volume hurdle concept, which helps businesses determine the increase in sales required to maintain profits after a price hike. Explore economic price optimization, a method used to identify the pricing strategy that maximizes profits by considering demand elasticity.
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