PRC-3 · Chapter 11 · Question 54 of 57
A business sells 20,000 units of its product monthly. The price elasticity of demand is exactly -0.8. If the firm raises its price by 5%, what will be the new sales volume?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 19,200 units
Explanation
Since Elasticity = %changeQ / %changeP. -0.8 = %changeQ / 5%. Thus %changeQ = -4%. A 4% drop on 20,000 units is 800 units, leaving 19,200 units.
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