Pricing Strategy quizzes
How businesses set prices based on costs, competition, customer demand, and perceived value.
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From Pricing Strategy: Price elasticity and willingness to pay · Price Elasticity of Demand
A product has an elasticity of -0.4. The firm cuts its price 10%. What happens to revenue?
- It stays flat, as the effects cancel out
- It rises, since more units are sold
- It falls, since units rise only about 4%
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Answer: It falls, since units rise only about 4%
A 10% cut raises quantity by roughly 0.4 x 10% = 4%, too little to offset the lower price. Discounting an inelastic product loses revenue.
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