You are the manager in charge of monitoring cash flow at a major publisher. Paper books comprise
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Question:
You are the manager in charge of monitoring cash flow at a major publisher. Paper books comprise 80 percent of your revenues, which grow about 5 percent annually. You recently received a preliminary report that suggests the growth rate in ebook reading has leveled off and that the cross-price elasticity of demand between paper books and ebooks is -0.3. In 2016, your company earned about $100 million from sales of ebooks and about $400 million from sales of paper books.If the own price elasticity of demand for paper books is -2.5, how will a 2 percent decrease in the price of paper books affect your overall revenues from both paper book and ebook sales?
Overall revenues will change by $ million?
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