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Question 9: A company reduces the price of its product, hoping to increase its overall profits. When the
quarterly numbers come in, the company sees that the decrease in price has led to a decrease in
profits. It decides to change the price back to its original price, but profits still do not recover to their
original levels. What happened?
A. Demand has become less elastic since the first price change.
B. Demand has become more elastic since the first price change.
C. The price elasticity of demand was 1 before the first price change.
D. The company experienced economies of scale at the lower price.
Correct Answer: B
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