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Math Help - price elasticity of demand of -0.5

  1. #1
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    price elasticity of demand of -0.5

    If the price elasticity of a product is -0.5, is it a good idea to cut the price?
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  2. #2
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    Quote Originally Posted by jhayes View Post
    If the price elasticity of a product is -0.5, is it a good idea to cut the price?
    Look at the effect on revenue PX.

    \frac{d(PX)}{dP} = \frac{dP}{dP}X + P\frac{dX}{dP} = X(1 + \frac{PdX}{XdP}) = X(1 -.5) = .5X > 0.

    So revenue moves in the same direction as price. Cut price, cut revenue. Doesn't sound good like a good idea.
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