Question

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should _____.
a. raise the price of the cinnamon rolls.
b. lower the price of the cinnamon rolls.
c. reduce costs.
d. leave the price of the cinnamon rolls unchanged.

Answer 1

Answer:

A. raise the price of the cinnamon rolls

Explanation:

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should raise the price of the cinnamon rolls. Cinnamon roll is an inelastic good in the community thus an increase in its price will not reduce quantity demanded. The owner of the bakery should increase price.