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.
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