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Assume that the price elasticity of cake is inelastic.explain why you cannot simply increase the price of cake in order to increase revenue.?
2 Answers
- Anonymous6 years ago
Why not? But the price might not reach the level that the baker can take all consumer surplus. There are a lot of cake and substitutes in the market. But the baker has the market power still,even a little bit smaller than the BP which sell oil.
- 6 years ago
Inelastic demand with respect to price means that demand will fall significantly as a percentage, in response to a price increase. Inelastic demand with respect to price means that for a % increase in price, you will see a greater % decrease in quantity demanded. People will switch to other products as the price of cake increases