Question

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following types of companies would most likely be able to increase prices?

a. A firm in a capital intensive industry in which excess capacity exists.
b. A firm operating in an industry that is transitioning from the high growth to the maturity phase of its life cycle.
c. A firm in a capital intensive industry that is expected to operate near capacity for the near future.
d. A firm operating in an industry that is expected to experience technological improvements in its production process.

Answer 1

A firm in a capital intensive industry that is expected to operate near capacity for the near future would most likely be able to increase prices.

Step-by-step explanation:

In this case, a firm in a capital intensive industry that is expected to operate near capacity for the near future would most likely be able to increase prices. When a firm operates near capacity, it means that it is utilizing its resources efficiently and does not have excess capacity. As a result, the firm has limited ability to increase production to meet increased demand, which creates an opportunity for the firm to increase prices without losing customers. For example, let's say there is a firm in the manufacturing industry that produces a specialized product. The firm operates near capacity, meaning it is already producing its maximum output. If there is an increase in demand for this specialized product, the firm can increase prices because it cannot easily meet the increased demand by increasing production. This allows the firm to take advantage of the high demand and maximize its profits.