Question

Serta is thinking of changing the price of a pillow from $50 to $75. This increase in price will decrease the number of pillows sold from 6,000 to 4,000 .

What is the price elasticity of demand (please show all of your ealculations)?

Answer 1

Elasticity of demand and pricing decisions

Step-by-step explanation:

If the elasticity of demand for the company's product at the current price is 1.4, I would advise the company to lower the price. This is because a decrease in price will be offset by the increase in the amount of the drug sold, resulting in higher total revenue. If the elasticity were 0.6, I would advise the company to raise the price. Increases in price will offset the decrease in number of units sold and lead to higher total revenue. If elasticity is 1, the total revenue is already maximized, and the company should maintain its current price level.