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Applications of price elasticity of demand

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In an article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimates would bring in an additional $65 million a year. The paper's publisher rejected the idea saying that the circulation could drop sharply after a price increase, citing The Wall Street Journal's experience after its increased its price to 75 cents What implicit assumptions are the publisher and the analyst making about price elasticity?

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Analyst is of the view that rise in prices will bring additional $65 million a year. He is expecting an increase in total revenue following a hike in price. It is possible in case of inelastic demand. In case of inelastic demand, ...

Solution Summary

Solution discusses the implicit assumptions made by publisher and analyst about price elasticity of demand.