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The Haas Corporation's executive vice president circulates a memo to the firm's top management in which he argues for a reduction in the price of the firms product. He says such a price cut will increase the firms sales and profits.

A) The firms marketing manager responds with a memo pointing out that the price elasticity of demand for the firms product is about -0.5. Why is this fact relevant?

B) The firms president concurs with the opinion of the executive vice president. Is she correct?

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