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    Price Elasticity of Demand and Determination of Price

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    You are a CEO of Ace Widget Co. You are certain that the price elasticity of demand for your product is 1/2. Your chief economist tells you to increase your product's price. Do you follow his advice or fire him? Fully explain.

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    By definition, price elasticity of demand is a measure of the responsiveness of the quantity that consumers demand for a good when the price of the good in question changes. When a small change in price is accompanied by a large change in the amount demanded, the product is said to be elastic. However if a large change in price is ...

    Solution Summary

    This solution discuses whether or not one would follow the advice of a chief economist.