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The price elasticity of demand for a firm’s product is equal to –0.8 over the range...

The price elasticity of demand for a firm’s product is equal to –0.8 over the range of prices being considered by the firm’s manager. If the manager decreases the price of the product by 10 percent, the manager predicts the quantity demanded will _____________ (increase, decrease) by ______ percent.

Select one:

a. Increased by 8%

b. Decreased by 80%

c. Decreased by 3%

d. Increased by 12.5%

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Answer #1

a. Increased by 8%

Explanation:

Price elasticity of demand = % change in quantity demanded/% change in price

0.8 = % change in quantity demanded/10%

% change in quantity demanded - 0.8 * 10% = 8%

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