Final answer:
The correct answer is that gross profit will increase equally with price increases if the cost of goods sold stays the same. A constant COGS ensures that additional revenue from higher prices directly boosts gross profit, whereas increasing COGS would necessitate higher prices to maintain profit margins.Thus the correct option is B.
Step-by-step explanation:
When the price increases, there is an equal increase in the gross profit for each sale as long as the cost of goods sold (COGS) stays the same. If COGS remains constant, the extra revenue generated from the higher sales price flows straight to the bottom line, improving gross profit. In contrast, if COGS rises, it will absorb some of the additional revenue from increased prices, mitigating the potential increase in gross profit.
Considering the cost of production and desired profit dictate the price, if a company wants to maintain or increase its gross profit margin, it should keep COGS steady while increasing prices. However, if COGS increases, the company would need to increase the price even more to achieve the same gross profit per item sold. In a constant-cost industry, supply can meet demand without changing the equilibrium price; however, if costs increase due to scarce inputs or rising wages, prices must rise accordingly.