The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units per day at a price of $2. If the firm increases its product price by 10 percent, then it can expect to sell approximately
A) 4,280 units.
B) 3,280 units.
C) 2,720 units.
D) 1,980 units.

Question

Quizplus · Accepted Answer

The price elasticity of demand is -1.8, meaning a 10% increase in price will lead to an 18% decrease in quantity demanded. 18% of 4,000 units is 720 units, so the firm can expect to sell approximately 3,280 units (4,000 - 720).

The Price Elasticity of Demand for a Firm's Product Is