Question

A firm is currently selling 10,000 units of its product per month. The firm plans to reduce the retail price from ₹ 1 to ₹ 0.90. From the previous experience, the firm knows that the price elasticity of demand for the product is (−) 1.5. Assuming no other changes, the firm can now expect the sales of ______.

Options

• 8,500 units

• 10,500 units

• 11,000 units

• 11,500 units

Answer 1

A firm is currently selling 10,000 units of its product per month. The firm plans to reduce the retail price from ₹ 1 to ₹ 0.90. From the previous experience, the firm knows that the price elasticity of demand for the product is (−) 1.5. Assuming no other changes, the firm can now expect the sales of 11,500 units.

Explanation:

The price falls by 10%, so demand rises by \[ 1.5 \times 10\% = 15\% \]. Expected sales are \[ 10{,}000 + 0.15(10{,}000) = 11{,}500 \] units.