Your company’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 a price cut will increase the firm’s sales and profits.
(1) As the head of marketing you respond 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?
(2) The firm’s president concurs with the opinion of the executive vice-president. Is he correct?