Question

A company doing marketing research finds that a 10 percent increase in its product's price would create a 5 percent decrease in the quantity demanded of its product. a. Based on this information, demand for the company's product is multiple choice 1 inelastic. perfectly inelastic. unit-elastic. perfectly elastic. elastic. b. Using this same information, the company should ________ the price of its product. multiple choice 2 not change raise lower

Answer 1

a. Inelastic, b. Raise

Step-by-step explanation:

a. When the price rises by 10%, the quantity demanded falls only by 5%, that is, falls by less than proportionate amount. It is proof that the demand is inelastic.

b. If the company wants to raise its revenue, it must raise its price. It will lead to less than proportionate fall in demand, leading to an increase in total revenue.