Sony is considering a 10 percent price reduction on its HD TV sets. If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause
A) sales quantity to increase and revenues to also increase.
B) sales quantity to increase but revenues to decrease.
C) sales quantity to decrease and revenues to also decrease.
D) sales quantity to decrease but revenues to increase.

Question

Quizplus · Accepted Answer

A price elasticity coefficient of 0.75 indicates that the demand for the product is elastic, meaning that a 10 percent price cut will result in more than a 10 percent increase in quantity demanded. However, because the price cut will also lead to a reduction in revenue per unit sold, the overall effect will be an increase in quantity demanded but a decrease in total revenues.

Sony Is Considering a 10 Percent Price Reduction on Its