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.

Related Economics A Level answers

All answers ▸

What is the Current Account


What are the objectives of a firm?


Evaluate the view that attempts by governments to eliminate market failure by intervening in markets for public goods and merits goods will inevitably lead to government failure.


Explain why the price elasticity of demand for two products may vary.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2024

Terms & Conditions|Privacy Policy