Final answer:
The price elasticity of demand being -0.5 indicates inelastic demand. A 6 percent price cut would result in sales rising by 3 percent and revenue falling by 3 percent, not 3.2 percent.
Step-by-step explanation:
The concept being discussed in the question is the price elasticity of demand, which reflects how the quantity demanded of a good responds to a change in its price. In this scenario, the price elasticity of demand is given as -0.5, which implies that the demand is inelastic. This means that a price decrease will lead to a proportionally smaller increase in quantity demanded. Therefore, if prices are cut by 6 percent, we would expect that sales would rise, but not enough to increase total revenue. Given that the elasticity is less than 1, the effect of a price decrease on the quantity demanded will not offset the lower price, leading to a decrease in revenue. Since the price cut is 6 percent and the elasticity is -0.5, the sales should rise by 3 percent (6% x (-0.5) = -3%), and the revenue should fall by 3 percent. Hence, the correct answer is 'revenue should fall by 3 percent.'