Managerial Economics 12th Edition by Christopher Thomas,Charles Maurice

Exercise 1

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 estimated would bring in an additional $65 million a 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?