A business, currently selling 10,000 units of its product per month, plans to reduce the retail price from Rs. 1 to Rs. 0.90. It knows from previous experience that the price elasticity of demand for this product is (-) 1.5. Assuming no other changes, the sales the business can now expect each month will be:

The correct answer is: C. 11,000

Price elasticity of demand is a measure of how responsive consumers are to changes in price. A price elasticity of demand of -1.5 indicates that a 1% decrease in price will lead to a 1.5% increase in demand.

In this case, the business is planning to reduce the price of its product from Rs. 1 to Rs. 0.90. This is a 10% decrease in price. Assuming that the price elasticity of demand remains constant, we can expect demand to increase by 15%. This means that the business can now expect to sell 11,000 units of its product per month, up from 10,000 units per month before the price reduction.

Here is a brief explanation of each option:

• Option A: 8,500. This is the number of units that the business would expect to sell if the price elasticity of demand were -2. A price elasticity of demand of -2 indicates that a 1% decrease in price will lead to a 2% increase in demand. In this case, the business would expect to sell 8,500 units of its product per month, down from 10,000 units per month before the price reduction.
• Option B: 10,500. This is the number of units that the business would expect to sell if the price elasticity of demand were -1. A price elasticity of demand of -1 indicates that a 1% decrease in price will lead to a 1% increase in demand. In this case, the business would expect to sell 10,500 units of its product per month, up from 10,000 units per month before the price reduction.
• Option C: 11,000. This is the correct answer. As explained above, the business can now expect to sell 11,000 units of its product per month, up from 10,000 units per month before the price reduction.
• Option D: 11,500. This is the number of units that the business would expect to sell if the price elasticity of demand were -0.5. A price elasticity of demand of -0.5 indicates that a 1% decrease in price will lead to a 0.5% increase in demand. In this case, the business would expect to sell 11,500 units of its product per month, up from 10,000 units per month before the price reduction.