The sales manager of a retail outlet suggests that the best way to increase customers is to have a sale. If a 10 percent price cut doesn’t bring in enough customers, then he’ll cut prices 20 percent. Increased cash flow should take care of profits. Do you agree? Explain.
What will be an ideal response?
A price cut will (usually) lead to increased unit sales. However, if demand is inelastic, then the price cut will reduce total revenue. The pricing plan makes more sense if demand is elastic.
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