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Elasticity of Ice Cream

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An ice cream store owner reads in the local paper that the elasticity of market demand for ice cream is -.38. He concluded that if he raised the price of ice cream, his total revenue would increase. So, he increased his prices by 18%, yet revenues fell substantially. Why did this outcome occur?

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Solution Summary

This solution explains price elasticity and provides an explanation to better illustrate the concept.

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The newspaper article may be saying that the demand for ice cream as an industry is -0.38. But since ice cream is a competitive market, there must be many ice cream ...

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