1. A firm is currently charging a price of $150 and is considering a price change. They currently sell 100,000 units of their product. If they raise their price to $165 they will sell 95,000 units of their product. If they decrease their price to $135 they will sell 105,000 units of their product. Calculate the elasticity of both changing from 150 to 165 and changing from 150 to 135. Is the demand of the firm at these prices elastic or inelastic? Should the firm change their price? In which way? (Justify the change in terms of elasticity)

1. A firm is currently charging a price of $150 and is considering a price change. They currently sell 100,000 units of their product. If they raise their price to $165 they will sell 95,000 units of their product. If they decrease their price to $135 they will sell 105,000 units of their product. Calculate the elasticity of both changing from 150 to 165 and changing from 150 to 135. Is the demand of the firm at these prices elastic or inelastic? Should the firm change their price? In which way? (Justify the change in terms of elasticity)

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 5CQQ: An increase in the supply of a good will decrease the total revenue producers receive if a. the...

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