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BPP Question with wrong answer

Forums › ACCA Forums › ACCA PM Performance Management Forums › BPP Question with wrong answer

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  • May 30, 2016 at 12:22 pm #318121
    fuadmardanov
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    Question Message Body: Question from Paper F5 | Performance Management | BPP Practice & Revision Kit for exams from 1 September 2015 to 31 August 2016
    26.9 The demand for a product at its current price has a price elasticity greater than 1.0 (ignoring the minus sign). Which of the following statements must be correct?
    (1) A reduction in the sales price will increase total revenue.
    (2) A reduction in the sales price by x% will result in a percentage increase in sales demand which is greater than x%.
    (3) An increase in the selling price will increase total profit.
    A Statements 1 and 2 only must be correct
    B Statements 1 and 3 only must be correct
    C Statements 2 and 3 only must be correct
    D All three statements must be correct

    Answer: 26.9 A (Syllabus area B4(b))
    When the price elasticity of demand is elastic, a reduction in price by x% will increase the quantity demanded by more than x% and as a result total sales revenue will increase.
    Without knowing about marginal costs, it is not possible to determine whether profits would increase or fall.

    I think that only statement 1 is correct.
    Because for example, say, 100 units at $10 for each = $1000 say, elasticity is 1.1 (greater than 1.0)
    If we reduce price 1 dollar i.e to 9 dollar, units sold will 111
    111 units at $9 for each = $999
    It shows that statement 1 is not always correct

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