A firm wants to increase the quantity of the product it sells by 5%. If the...

A firm wants to increase the quantity of the product it sells by 5%. If the price elasticity of demand is -2.5, the company must

A. increase price by 2.0%.
B. decrease price by 2.0%.
C. increase price by 0.5%.
D. decrease price by 0.5%.
E. None of the abov3

Expert Solution

price elasticity of demand = % change in quantity / % change in price

=> -2.5 = 5/% change in price

=> % change in price = 5/-2.5 = -2

Thus, the answer is (b) decrease price by 2%

Rahul Sunny answered 2 years ago

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