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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is Chapter 5, Problem 6SCQ, Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that , example  1 would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were Chapter 5, Problem 6SCQ, Suppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that , example  2 What if it were 1? Explain your answer.

To determine

A pharmaceutical company wants to increase the total revenue from the drug. If the elasticity of demand is 1.4 at present, whether it should raise price or lower price or keep it constant? What if the elasticity were 0.6 or 1? Explain.

Explanation

If the elasticity of the product is 1.4 it means the demand is elastic for the product, then seller must decrease the price in order to increase the total revenue. As the price drops, the demand for the product rises more than the drop in the price and total revenue increases.

If the elasticity of the product is 0.6 it means the demand is inelastic for the product, then seller must increase the price in order to increase the total revenue...

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