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The opposite of a 0.25 cent oil increase is a 0.25 cent oil decrease.

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10y ago

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Price elasticity of demand is known to be -2.5 and the firm lowers price by 5 percent What is the expected impact on the total revenue of the firm?

Price elasticy is defined as percentage change in quantity divided by the percentage change in price. The relationship is usually negative as you increaes price you can expect less sales. With price elasticity of -2.5 that means for every one percent increase in price(.01), I expect my quanity sold to decrease by 2.5 percent (.025). If the firm lowers the price by 5% then I would expect and increase of (5 * .025) = .125 or a 12.5% increase in total revenue. Remember all else equal.


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