Finance Formulas / July 19, 2018 / Rory Wise
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.
For example, if a company had $150,000 in revenues and $50,000 in explicit costs, its accounting profit would be $100,000. The same company also had $25,000 in implicit, or opportunity costs. Its economic profit would be $75,000.
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