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

1185 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is a budget deficit?


Explain why and when government spending leads to inflation


Evaluate the view that all firms are aiming to maximise profits


What is the definition of fiscal policy and what are the main differences between an expansionary fiscal policy and contractionary fiscal policy


We're here to help

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

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences