Final answer:
The effect of raising the price of a good by one dollar on profits is indeterminate because it depends on elasticity of demand and other market factors. Increased price can potentially lead to higher profits if demand is inelastic; however, if demand is elastic, it may lead to lower profits.
Step-by-step explanation:
When considering the impact of raising the price of a good by one dollar, the effect on profits can vary depending on several factors. If the cost of production remains constant, an increase in price could lead to an increase in profits because of higher margins. However, this scenario is based on the assumption that the quantity sold remains unchanged. In practice, an increase in price may lead to a decrease in the quantity demanded, which could reduce the total revenue and affect profits negatively.
The elasticity of demand plays a crucial role here; if the demand for the product is inelastic, the quantity demanded might not fall significantly, and profits could increase. Conversely, if the demand is elastic, the quantity demanded could decrease substantially, potentially reducing profits. Therefore, the correct answer is: Raising the price of a good by one dollar leads to an indeterminate change in profits (A), because the actual change depends on factors such as the elasticity of demand, competitive landscape, and the cost structure of the firm.