A newspaper recently lowered its price from $5.00 to

$3.00. As it did, the number of newspapers sold increased from 240,000 to 280,000.

a. What was the newspaper’s elasticity of demand?

b. Given that elasticity, did it make sense for the newspaper to lower its price?

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?