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    Question

    A firm finds that for the product it produces, its (own)

    price elasticity of demand is 4. Currently, the firm is selling 1000 units per month at Rs. 5 per unit. If it wishes to increase its sales by 10%, it must
    A lower its price by 4% Correct Answer Incorrect Answer
    B lower its price by 2% Correct Answer Incorrect Answer
    C lower its price by 2.5% Correct Answer Incorrect Answer
    D increase its price by 2% Correct Answer Incorrect Answer
    E does not change its price Correct Answer Incorrect Answer

    Solution

    PED = % change in qty/ % change in price 4 = 10%/% change in price % change in price = 2.5%. Since qty has increased, the price will fall by 2.5%.

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