Asked by Fahim Sultanzada on Jun 01, 2024
Verified
Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because
A) They lose market power
B) There is an increase in the overall demand for their products
C) The bundle has a more elastic demand than individual goods
D) The bundle has a more inelastic demand than individual goods
Substitute Good
A product or service that can be used in place of another to satisfy similar needs or demands.
Market Power
The ability of a company or group of companies to control prices and total market output in an industry or sector.
Elastic Demand
Describes a market scenario where the demand for a product significantly changes in response to changes in the price of that product.
- Assess the influence of market supremacy and competitive interaction on the determination of prices.
Verified Answer
KS
Karuna SinghJun 08, 2024
Final Answer :
D
Explanation :
When a firm acquires a substitute, it reduces the degree of competition and increases its market power. This makes the demand for the bundle of goods more inelastic compared to when the goods were sold separately. As a result, the firm can increase the price without fear of losing too many customers.
Learning Objectives
- Assess the influence of market supremacy and competitive interaction on the determination of prices.