Final answer:
If the elasticity of demand for a pharmaceutical's product is 1.4, the company should lower the price to increase revenue. If it's 0.6, they should raise the price, and if it's 1, they may keep the price the same.
Step-by-step explanation:
Pricing Strategy and Elasticity of Demand
When advising a pharmaceutical company on whether to raise, lower, or keep the price of a new hair growth drug the same, it's essential to consider the elasticity of demand. If the elasticity of demand is 1.4, I would advise the company to lower the price because the demand is elastic, meaning that the quantity demanded responds significantly to price changes. A lower price would lead to a more than proportional increase in quantity demanded, potentially increasing total revenue.
If the elasticity were 0.6, the demand would be inelastic, and the company should raise the price. The increase in price won't cause a substantial reduction in quantity demanded, so revenue is likely to increase. If the elasticity were exactly 1, the demand is unit elastic, meaning that price changes lead to proportional changes in quantity demanded, and revenue stays the same, in which case keeping the price the same might be advisable.