For your own protection, it may be helpful to report all the steps rather than just listing the final results. N.B.: Price elasticity of demand: Percentage change in quantity/ percentage change in price. Percentage change in total revenue percentage change in price + percentage change in quantity.
In 2003, when music downloading first took off, Universal Music slashed the price of CDs from an average of $24 to an average of $16. The company said that it expected the price cut to boost the quantity of CDs sold by 50 percent. Questions: (a) What was Universal Music's estimate of the price elasticity of demand for CDs? And (b) given your answer to (a), if you were making the price decision at Universal Music, would you cut the price, raise the price or leave the price unchanged? Please, explain your decision.