A company notices that when they increase the price of their product by 10%, the quantity demanded decreases by 20%. How can the company use this information regarding price elasticity of demand to make strategic pricing decisions in the future?

Because a 10% price hike cuts sales by 20%, the demand is elastic (elasticity of 2. 0), meaning customers are very sensitive to price changes. This tells the company that raising prices will likely lower total revenue, so they should avoid large price hikes and instead look for ways to reduce costs or add value without raising the price. They could use small, incremental price changes or focus on non‑price competition like better service or bundling. For example, if the product costs $50, a 5% price cut to $47.