managerial economics_2 - 2 The American Express Company...

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Unformatted text preview: 2. The American Express Company planned to raise its annual fees for green and gold cards by $10. Green card fees increased from $45.00 to $55.00 while those for Gold cards went to $75.00 from $65.00 per year. Peter Kline, a financial analyst, estimated that American Express would find an increase in its bottom revenues of 60 to 70 million dollars, even though it would lose some customers. Clearly, American Express must be facing an inelastic demand for its cards. Results show that although price increased, by over 22 percent for Green cards and by over 15 percent for Gold cards, total spending on the cards increased. Our review of the price elasticity of demand indicates that it must be inelastic. Mr. Kline estimated that American Express had about 13 million Green card holders and 7 million Gold card holders. Can we figure out the price elasticity from the information we have? (Hint: First find a weighted average percentage increase. Remember to show your solutions.) => TR = [( P)Q] + [P(...
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This note was uploaded on 08/28/2011 for the course IMBA 101 taught by Professor Trott during the Spring '11 term at National Cheng Kung University.

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managerial economics_2 - 2 The American Express Company...

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