Question

What explanations have economists offered for why firms​ don't raise prices when doing so would seem to increase​ profits? Firms might not raise prices when doing so might increase profits because

A. consumers find it unfair for firms to increase prices after an increase in demand.

B. consumers find it unfair for firms to increase prices after an increase in costs.

C. firms are not concerned about profit in the long run.

D. the amount consumers wish to buy is unrelated to how much of the product other people are consuming.

E. both a and b.

Answer 1

Answer: The correct answer is "A. consumers find it unfair for firms to increase prices after an increase in demand".

Explanation: Economists established 2 explanations of why companies do not increase their prices even if they can make higher profits.

First it was discovered that some products have the characteristic that the amount of product that a customer wants to buy can depend on the amount of the product that other people are consuming.

And then it was discovered that most people are satisfied that companies raise prices because of an increase in costs, but consider it unfair to raise prices as a result of increased demand.