Question

Explain how each of the factors would or would not affect the price elasticity of demand for a good or service that your company (or a company for which you have an interest) produces?

Answer 1

If the elasticity of demand is 1.4, it would be advisable to lower the price. If the elasticity is 0.6, it would be advisable to raise the price. If the elasticity is 1, it would be advisable to keep the price the same.

Step-by-step explanation:

1. If the elasticity of demand for the company's product is 1.4, it means that a 1% increase in price will result in a 1.4% decrease in quantity demanded. In this case, it would not be advisable to raise the price as the decrease in quantity demanded would offset the increase in price and result in lower revenue. It would be better to lower the price to stimulate demand and maximize revenue.
2. If the elasticity of demand is 0.6, it means that a 1% increase in price will result in a 0.6% decrease in quantity demanded. In this case, raising the price would be advisable as the decrease in quantity demanded would be proportionally smaller than the increase in price, resulting in higher revenue.
3. If the elasticity of demand is 1, it means that a 1% increase in price will result in a 1% decrease in quantity demanded. In this case, keeping the price the same would be advisable as any change in price would have an equal impact on quantity demanded, and revenue would not be maximized by raising or lowering the price.