How does the price elasticity of demand impact a firm’s pricing decisions and revenue growth?

Expert Solution

Price elasticity of demand means degree of responsiveness of demand with respect to price.. Higher the price elasticity of demand means people are more sensitive to price changes.

* If price elasticity of demand is greater than ( more elastic) firm raises price by 20% leads to a reduction in the total revenue.

* If price elasticity of demand is inelastic, an increase in the price of a product by a firm will increase their total revenue.

* If price elasticity is unitary elastic ( =1), an increase in the price leads to no change in the total revenue of the firm.

A change in the quantity demanded is a result of change in price will affect the total expenditure of the consumers and also affects the revenue of the firm. In the above explanation we can clearly understand that the price elasticity of demand can influence the pricing decision and total revenue of the firm.

Rahul Sunny answered 2 years ago

How does the price elasticity of demand impact the firm’s pricing decisions and revenue growth?

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