Your CFO wants to maximize the firm’s revenue and she wants a pricing recommendation from you. You’ve calculated the price elasticity of demand for your product at -0.1. Your recommendation is that the firm should.
A. Raise the price until demand becomes more elastic
B. Raise the price until demand becomes more inelastic
C. Lower the price until demand becomes more elastic
D. Lower the price until demand becomes more inelastic
E. Do nothing because the product is unit elastic
A. Raise the price until demand becomes more elastic
B. Raise the price until demand becomes more inelastic
C. Lower the price until demand becomes more elastic
D. Lower the price until demand becomes more inelastic
E. Do nothing because the product is unit elastic
Related textbook solutions
Related questions
In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.
Use the demand schedule in the table below to answer the following questions.
| Quantity Demand | Price |
| 10 | 200 |
| 20 | 150 |
| 30 | 100 |
| 40 | 50 |
| 50 | 25 |
a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.
b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.
in your answer it will be useful to recall that the midpoint formula for percentage change is:
%change midpoint = (final - initial) / ((finial + initial)/2)
and own price elasticity can be calculated by using the formula
Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)
