A company doing marketing research finds that a 10 percent decrease in its product's price would create a 5 percent increase in the quantity demanded of its product. a. Based on this information, demand for the company's product is. b. Using this same information, the company should the price of its product.

Question

Business

Alden Pitts

9 April, 02:55

A company doing marketing research finds that a 10 percent decrease in its product's price would create a 5 percent increase in the quantity demanded of its product. a. Based on this information, demand for the company's product is. b. Using this same information, the company should the price of its product.

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Answers (1)

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Bryan Mercer · Answer 1

a. - 0.5%

b. Raise

Explanation:

In this question we apply the price elasticity of demand formula i. e shown in the question

The formula to compute the Price elasticity of demand is shown below:

Price elasticity of demand = (Percentage change in quantity demanded) : (percentage change in price)

= 5% : - 10%

= - 0.5%

As we can see that the demand is inelastic that means if the price change of a particular good than there is no effect in the demand

b. So in this case, the company should raise the product price