posted by maggie on .
In the article about the financial problems of USA Today, Newsweek reported that the paper was losing about $20million a year. A Wall Street analyst said that the paper should raise its price from 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after price increase, citing, The Wall Street Journal’s experience after it increased its price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elastici
Take a shot. What do you think.
Hint: what elasticity value implies raising the price will raise total revenue? What elasticity value implies raising prices will lower total revenue?