Homework Help: price elasticity

Posted by raja on Saturday, October 16, 2010 at 10:38am.

In an article about the financial problems of USA Today, Newsweek reported that the pa-per was losing about $ 20 million a year. AWall 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 additional $65milliona year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after a 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 elasticity?

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