Ambers Video Rentals wants to increase the quantity of video

Amber\'s Video Rentals wants to increase the quantity of videos that it sells by 8 percent. The pricee elasticity of demand for videos sold by Amber\'s Video Rentals ts 4.0. What is the percentage price cut that will achieve the firm\'s objective? The percentage price cut is percent

Solution

Percentage change in quantity demanded = 8% or 0.08

Price elasticity of demand = 4

Price elasticity of demand is calculated as follows -

Price elasticity of demand = Percentage change in quantity demanded/Percentage change in price

4 = 0.08/Percentage change in price

Percentage change in price = 4/0.08

Percentage change in price = 0.02 or 2%

Thus, firm has to cut its prices by 2 percent in order to achieve its objective.

The percentage price cut is 2 percent.