Question

So long as consumers buy more at a lower price, firms can increase their profits by...

So long as consumers buy more at a lower price, firms can increase their profits by lowering the price or their costs.

TRue or false, if false why

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Answer #1

The statement is false

Price has a direct relation with marginal revenue and profits would increase only upto the point where marginal revenue exceeds or equals marginal cost for the last unit produced (marginal revenue is the revenue earned on additional unit of production). As diminishing returns sets in marginal costs increase and eventually rise above marginal revenue. Thus lowering price would lower marginal revenue and costs do not necessarily decrease with additional production.

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