Question

If a firm raises its product prices beyond reasonable levels, what will happen?

1) It will simply lose its market share.
2) It will increase its market share.
3) It will maintain its market share.
4) It will have no effect on its market share.

Answer 1

When a firm raises its product prices to unreasonable levels, it is likely to lose its market share.

Step-by-step explanation:

When a firm raises its product prices to unreasonable levels, it is likely to lose its market share. This is because customers would switch to competitors who offer similar products at lower prices. As a result, the firm would experience a decrease in sales and a decline in market share.

For example, if a firm sells smartphones and decides to increase the price significantly higher than the market average, customers may opt to purchase smartphones from other brands that offer similar features at lower prices. This would lead to a decline in the firm's market share.

Therefore, option 1) It will simply lose its market share, is the most accurate choice.