You are a manager in charge of monitoring cash flow at a major publisher. Paper books comprise 80 percent of your revenues, which grow about 2 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 −0.2. In 2019, your company earned about $150 million from sales of ebooks and about $600 million from sales of paper books.
If your data analytics team estimates the own price elasticity of demand for paper books is −2.5, how will a 1 percent decrease in the price of paper books affect your overall revenues from both paper books and ebooks sales?