a)
Percent change in price=Percent change in quantity demanded/Price elasticity of demand
Percent change in price=28%/(-4)=-7%
Price should decrease by 7%
b)
Given initial price=P1=$1
Promotional price=P2=1*(1-7%)=$0.93
c)
Revenue before price drop=P1*Q1=1*100000=$100,000
d)
Quantity after price drop=100000*(1+28%)=128,000
Revenue after price drop=P2*Q2=0.93*128000=$119040
e)
There is an increase in revenue. Its a good strategy.
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