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ABCD sells 100 lawn mowers per month at a sales price of $2,000 each. Overall, mower demand is described by the price equation: P = 2,800 - 5Q, and the firm's estimated marginal cost is $1,000 per mower. The head of marketing points out that mower demand is quite elastic at the current $2,000 price. Therefore, he recommends cutting price in order to increase revenue and profit. a) Compute the point price elasticity for mower. Is the marketing chief correct? b) Do you agree or disagree with cutting price. describe.

Microeconomics, Economics

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