Final answer:
The price elasticity of demand for the drug at a price of $1,000 is -2.75, indicating highly elastic demand. For an elasticity of 1.4, lowering the price is recommended; for an elasticity of 0.6, raising the price is advised; and for an elasticity of 1, the price should be maintained.
Step-by-step explanation:
To calculate the price elasticity of the demand for the pharmaceutical drug when the price is $1,000, we'll use the given data points: a price drop from $1,100 to $1,000 coincides with an increase in quantity sold from 8,000 to 10,000 pills. The formula for elasticity is (Percentage change in quantity demanded / Percentage change in price). First, we calculate the percentage change in quantity demanded: ((10,000 - 8,000) / 8,000) * 100 = 25%. Next, we calculate the percentage change in price: (($1,000 - $1,100) / $1,100) * 100 = -9.09%. Now, we put it all into the elasticity formula: 25% / -9.09% = -2.75 (the negative sign indicating that the relationship is inversely proportional).
With an elasticity of -2.75, the demand is highly elastic. Therefore, when the elasticity is 1.4, you would advise the company to lower the price because demand is price sensitive, and decreased prices should lead to a proportionally larger increase in quantity sold, raising total revenue. However, if the elasticity were 0.6, you would advise to raise the price, since the increase in price would lead to a smaller percentage drop in quantity sold, still increasing total revenue. In the case of an elasticity of 1, price changes would not affect total revenue, so maintaining the current price is the optimal strategy.