The Haas Corporation's executive vice president circulates a memo to the firm's top management in which he argues for a reduction in the price of the firm's product. He says such a price cut will increase the firm's sales and profits.
a. The firm's marketing manager responds with a memo pointing out that the price elasticity of demand for the firm's product is about -0.5. Why is this fact relevant?
b. The firm's president concurs with the opinion off the executive vice president. Is she correct?