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What is the effect of a percent increase

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We are working on elasticity of demand. Consider a good whose price elasticity of demand equals -0.5.

a. What is the effect of a 10 percent increase in price on this good's quantity demanded? Is demand price elastic or price inelastic?

b. What is the effect of a 10 percent increase in price on the firm's total revenue (P x Q). You need a number here. Please explain the answer.

c. According to the law of demand, quantity demanded falls when price rises. What is the effect of the decrease in the total number of units produced on the firm's total costs (i.e., the amount of money the firm must pay its workers, suppliers, and other inputs), holding wages and input prices constant?

d. A firm's profit equals the difference between its revenue and costs. Based on your answers to parts (b) and (c) what is the effect of raising price on a firm's profit when it is operating where demand is price inelastic? Explain by discussing the effect of an increase in price, and concomitant decrease in the quantity produced, on the firm's revenue and costs.

e. I'm hired as a pricing analyst and discover that past price changes have had almost no effect on the number of units sold for one the products you manage. What changes, if any, would you make to the price of this product? Explain the answer and why the change proposed is expected to increase the firm's profit.

Reference no: EM132786024

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