A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is
A)unit-elastic from the union's perspective and unit-inelastic from management's perspective.
B)perfectly inelastic from the union's perspective and perfectly elastic from management's perspective.
C)elastic from the union's perspective, inelastic from management's perspective.
D)inelastic from the union's perspective, elastic from management's perspective.

Question

Quizplus · Accepted Answer

The union believes a price cut will increase revenues, implying they think demand is elastic (a decrease in price leads to a proportionally larger increase in quantity demanded, raising revenue). Management believes the opposite, implying they think demand is inelastic (a decrease in price leads to a smaller proportionate increase in quantity demanded, lowering revenue).

A Union Argues That a Price Cut Will Boost the Revenues