YourStore currently sells milk for $1 per litre. Friendly Grocers (a competitor)

Question

YourStore currently sells milk for $1 per litre. Friendly Grocers (a competitor) previously reduced their price to $1 per litre in order to compete. Friendly Grocers has now decided to increase their price to $1.20 per litre to improve profitability Sales of milk at Friendly Grocers have fallen dramatically since they increased their price with reduced reven e andamos no k beng Which of the following statements is true? We can infer that at $1 per litre, the demand for milk is definitely inelastic From the pricing and quantity information relating to Friendly Grocers' milk sales, the midpoint price elasticity demand for milk in this situation would show it to be elastic. We can infer that the point elasticity of demand for milk is always elastic. The experience o Friendly Grocers' suggests that a 1% increase in the ice of milk rom S1 per i re would leadto a less than 1 % reduction n the quantity demanded O We are unable to infer anything about the point elasticity of demand for milk from the information given

Explanation / Answer

Option 3

We can infer that point elasticity of demand is always elastic. The two competitors involved competing for market share mentioned in the question & hence if one of them increases the price the second one grabs the market share keeping his price constant.

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