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1. IBM would like to sell 5% of its products in 2022 more than the year before; its price elasticity of demand is -1.25 and that its average per unit currently is $350. In order for IBM to be able to realize its sales objective (5%),

a. By what percentage should the company lower its price level (your final answer must be shown in percentage)?

Respuesta :

Parrain

IBM should lower their prices by 4% in order to increase sales by 5%.

The price elasticity of a good is calculated by the formula:

Price elasticity = %Change in quantity demanded / %Change in price

If the company needs to increase its sales, it needs to reduce its prices because its negative price elasticity means that it needs to reduce prices to increase sales and vice versa.

We have the price elasticity and the change in quantity demanded required (5%) so we can find out the percentage reduction price required:

-1.25 = 5% / Change in price

Change in price x -1.25 = 5%

Change in price = 5% / -1.25

Change in price = -4%

In conclusion, IBM needs to reduce their prices by 4% to sell by 5% more.

Find out more at https://brainly.com/question/13222709.

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