Finance Formulas / July 18, 2018 / Cecelia Weiss
When the cross elasticity of demand for product A relative to a change in the price of product B is positive, it means that in response to an increase in the price of product B, the quantity demanded of product A has increased. An increase in the price of product B means that more people will consume A instead of B, and this will increase the quantity demanded of product A.
Contribution margin is directly related to the contribution margin ratio. The contribution margin ratio can be calculated on a per-unit basis or an aggregate basis. The per-unit basis divides the contribution margin per unit by the unit sale price, while the total contribution margin ratio divides the total contribution margin by the total revenue. The figure will result in a percentage that indicates what percentage of each dollar of revenue is generated to cover fixed costs.
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