Question
Can someone explain me why the answer is A. Thanks A firm started advertising its product...
Can someone explain me why the answer is A.
Thanks
A firm started advertising its product and this changed the product's elasticity from -2 to -1.5. The firm should a. Raise price from $10 to $15 b. Reduce price from $15 to $10 C. Raise price from $7.5 to $10 d. Reduce price from $10 to $7.5
Answers
The elasticity fell as a result of advertising.Lesser the value of elasticity,the less responsive quantity demanded is to price.If the firm increase the price in this case,quantity demanded would not fall much,such that total revenue will rise.
∆Q<∆P which causes TR to rise.
The firm should raise price but not very much because the demand is still elastic(though relatively less elastic than before)
Answer-C
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