Question

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to

Answer 1

Answer:

I would recommend the producer to raise the price, in order to get more revenue.

Explanation:

A price elasticity of demand (PED) of less than 1 is considered inelastic. When a good has an inelastic PED, it means that the quantity demanded changes proportionally less than the price.

If the good X has a PED of 0.75, it means that the good is inelastic. The producer can therefore raise the price of the good, and obtain more revenue, because the quantity demanded will not fall as much as the price rose.