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Assume that the price elasticity of demand is - 2 for a certain firm's product. If...

Assume that the price elasticity of demand is - 2 for a certain firm's product.

If the firm reduces price, what can the firm's managers to be the impact on total revenue? Explain.

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Answer #1

If the price elasticity of demand is - 2 for a certain firm's product, if the firm reduces price, the firm's managers to be the impact on total revenue will decrease as the Marginal Revenue is the revenue that results from selling one more unit of output.

MR= Total revenue/ total quantity

It can be identified by the study of price elasticity and total revenue because it is actual after that the firm reduces price then the impact will decrease. Total revenue has the effect of elasticity of demand and price changes the changes in total revenue depends on elasticity.

Hence the firm's managers to be the impact on total revenue will decrease.

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