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b. If Reynolds increases cigarette prices by 12 percent and the price elasticity of demand is...

b. If Reynolds increases cigarette prices by 12 percent and the price elasticity of demand is 0.4, by how much will its annual revenue of $11 billion increase

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Answer #1

Price elasticity of demand (PED)= % change in quantity demanded /% change in price of the good.

PED=0.4

Percentage increase in price =12%

Let percentage increase in quantity be x

(x/12%)=0.4

x=4.8%.

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