Using knowledge of PED, when should a firm decrease the price of a good to maximise revenues?

A firm should only decrease the price of a good if the good is price elastic (PED>1). This is because in percent decrease in price will result in a greater percent increase in quantity demanded so revenues (PxQ) will rise.
If a firm decreases the price of a good that is price inelastic (0<PED<1), the percent increase in quantity demanded will be relatively lower so revenues fall.

Answered by Economics tutor

1413 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Should maximising profits be the main objective of a business?


Comment on whether an increase in the rate of interest would reduce investment.


Explain what is meant by allocative efficiency and Pareto optimality. Consider whether they are linked .


Define the term 'income inequality'


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning