Answer:
1.44, Demand is ELASTIC so it make sense to lower the price because the total revenue will increase.
Explanation:
A newspaper recently lowered its price from 55 cents to 50 cents.
As it did, the number of newspapers sold increased from 310,000 to 350,000. a. What was the newspaper’s elasticity of demand? Instructions: Enter your response rounded to two decimal places. Price elasticity of demand:
Percentage change in quantity demanded (40,000 / 310,000 = 13%) divided by a percentage change in price ($0.05 / $0.55= 9%) = 1.44
b. Given that elasticity, did it make sense for the newspaper to lower its price?
YES
Demand is ELASTIC so it make sense to lower the price because the total revenue will increase.
c. What would your answer be if much of the firm’s revenue came from advertising and the higher the circulation, the more it could charge for advertising?
My answer will remain unchanged because circulation will only increase if the price is reduced and more newspapers are being purchased
Answer:
Explanation:
Given the following;
Quantity 1 = 310,000
Quantity 2 = 350,000
Price 1 = $0.55
Price 2 = $0.50
A.) Elasticity of demand:
%(change in quantity) ÷ %(change in price)
% change in quantity= ((350000 - 310000) /310000) × 100 =
= ((40000)/310000) × 100 = 12.9%
% change in price = ((0.50 - 0.55) / 0.55) × 100 = (-0.05 ÷ 0.55) × 100 = 9.1%
Elasticity of demand = (12.9% ÷ (-9.1%)) = - 1.42
B.) Yes, lowering the price made sense, as it has increased the revenue of the newspaper company.
C.) If the firm's revenue is based on advertising which is dependent on rate of circulation, then I will approve the move of the firm, as the move to lower the price has increased the quantity demanded which means higher circulation and ultimately higher revenue from advertisement as a lot of people wants publications that are far reaching.
