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Pricing Products
and Services
Appendix A
McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc.
A-2
Learning Objective 1
Compute the profit-
Compute the profit-
maximizing price of a
maximizing price of a
product or service using
product or service using
the price elasticity of
the price elasticity of
demands and variable
demands and variable
cost.
cost.
McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc.
A-3
The Economist’s Approach to Pricing
Elasticity of Demand
Elasticity of Demand
Elasticity of Demand
The price elasticity of demand measures the degree
to which the unit sales of a product or service is
affected by a change in price.
Change Change
Change Change
Change Change
in versus in Unit
in versus in Unit
in versus in Unit
Price Sales
Price Sales
Price Sales
McGraw-Hill/Irwin Copyright © 2008, The McGraw-Hill Companies, Inc.
A-4
Price Elasticity of Demand
Demand for a product is inelastic if a change
inelastic
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