Question

A company doing marketing research finds that a 10 percent decrease in its product's price would create a 5 percent increase in the quantity demanded of its product. a. Based on this information, demand for the company's product is . b. Using this same information, the company should the price of its product.

Answer 1

Answer:

a. - 0.5%

b. Raise

Explanation:

In this question we apply the price elasticity of demand formula i.e shown in the question

The formula to compute the Price elasticity of demand is shown below:

Price elasticity of demand = (Percentage change in quantity demanded) ÷ (percentage change in price)

= 5% ÷ -10%

= - 0.5%

As we can see that the demand is inelastic that means if the price change of a particular good than there is no effect in the demand

b. So in this case, the company should raise the product price