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“For a firm to increase its market share and profitability, the demand and supply both should be elastic”
I understand how the demand needs to be elastic, but can you please explain about why supply should be elastic and what if its inelastic?
ThanksSo, to increase market share you need to reduce prices. This will stimulate demand so that revenue increases (despite the fall in selling price).
If demand increases you have to buy more. If supply were inelastic then paying a much higher price for your purchases would not increase your supply much (inelastic means that demand/supply does not change much with price).
What you need to increase profits is to be able to buy lots more yet only pay a slightly higher price. That means that supply is elastic (small proportional change in price produces large proportional change in volume).
HTH
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