In 2008, the New York Times Media Group earned revenues of $668 million from circulation, $1.077 billion from advertising, and $181 million from other sources. The Group decided to raise circulation prices and trim less profitable readership. In May 2009, theNew York Timesplanned to raise its weekday cover price from $1.50 to $2. The previous year, theTimeshad raised the price from $1.25 to $1.50, and circulation fell 3.6% to 1.04 million.

(a)

Using the 2008 price and circulation information, calculate the own-price elasticity of demand for theNew York Timesweekday edition.

(b)

At the current price of $1.50, and assuming 300 weekdays a year, what is the annual revenue from weekday sales?

(c)

Consider the expected 2009 price increase from $1.50 to $2. What is the percentage change in price?

(d)

Suppose that the expected 2009 price increase from $1.50 to $2 does indeed yield $40 million in incremental revenue. What is the percentage change in revenue?

(e)

Calculate the price elasticity of demand which would imply the $40 million increase in revenue. (Hint: Useequation (3.5).)

(f)

Compare the elasticities in (a) and (e). Does the difference make intuitive sense?

Equation (3.5) Proportionate change in expenditure = Proportionate change in price * (1 + Own - price elasticity demand)