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In October 1993, Rupert Murdoch, owner of The Times newspaper in London, decided to cut the price of his newspaper from 45p to 30p. Daily circulation for The Times went up from 366,000 in October 1993 to 454,000 in March 1994. When another rival also cut their price, Murdoch countered by cutting the price of The Timesfurther to 20p. By January 1996 circulation was up to 650,000.
a) Calculate the price elasticity of demand for The Times between October 1993 and March 1994, and between October 1993 and January 1996.
b) Using this information, what happened to the revenue earned from sales?
c) Using your answer to part (b), do you think Murdoch's decision was a wise one?
What other factors might have been at play here?
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