Test 1 Econ 212 Summer 2018 Ch 1789 Due Jun 1175 pointsAL re

Test 1 Econ 212 Summer 2018 (Ch 1-789) Due Jun 1)175 pointsAL research finds that a 10 percent increase in its product\'s price would create a 2 percent decrease in the 2 quantity demanded of its product ?. ? b Using this same information, the company should Cick to sect a. Based on this information, demand for the company\'s product is Cick to select the price of its product

Solution

The price elasticity of demand is

percentage change in quantity demanded/percentage change in price

=2/10 = 0.20

The price elasticity of demand is inelastic in this case.

b) Given this information,the company should increase the prices of the product to increase the revenue.

Because the elasticity is inelastic,a given rise in P will cause a smaller % fall in Q so that total revenue(PxQ) rises.