CFA Practice Question

CFA Practice Question

ACE enterprises produces widgets. A consultant suggests that ACE reduce the price of widgets by 1%. This results in an increase in demand for ACE's widgets by 2%. Which of the following is most likely correct?
A. Demand for widgets is inelastic and the price reduction increases ACE's profits.
B. Demand for widgets is elastic and the price reduction increases ACE's profits.
C. Demand for widgets is elastic and the price reduction increases ACE's revenues.
Explanation: Whether profits increase or not, depends also upon costs, not only upon number of widgets sold.

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