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To whom it may concern,
Please assist me on answering the following question and provide a brief explanation on how you arrived at the answer. Consider the following question:Which combination of demand and supply curves would be appropriate for a firm attempting to increase its profits by increasing its market share?
A. Inelastic demand, inelastic supply
B. Elastic demand, elastic supply
C. Inelastic demand, elastic supply
D. Elastic demand, inelastic supplyYour assistance is highly appreciated.
Higher market share implies higher sales volume.
To increase profits you would like revenue to increase and costs to decrease.
If revenue is to increase as volume increases, demand has to be elastic so that a small decrease in price causes a large increase in volume and, overall, revenue increases.
If you need to buy more to furnish the higher volume, you don’t want the price you have pay to have to go up massively, so elastic supply is needed – a small increase in what you pay will allow you to buy lots more units.
So I suggest answer B.
That is the right answer sir. I didn’t know what they meant by increasing market share. Initially I asked my lecturer about it and he said inelastic demand, elastic supply but clearly that is wrong. The answer B is provided by BPP. After consulting my lecturer, he said to follow BPP. Thank you so much for your help! I truly appreciate it. Your help came to me as light in a dark room.
I have one more theoretical question sir. If they asked which of the combinations above would result in maximum profit, without stating whether the organisation wanted to increase market shares, would the same answer still apply?
Once I again I express my highest of gratitude towards you sir!
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