(Answered) Your companyrsquos executive vice president circulates a

Economics

Your company’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 firm’s product. He says a price cut will increase the firm’s sales and profits.

(1) As the head of marketing you respond with a memo pointing out that the price elasticity of demand for the firm’s product is about -0.5. Why is this fact relevant?

(2) The firm’s president concurs with the opinion of the executive vice-president. Is he correct?

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Microeconomics, Economics

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