What if demand responds differently to price?

How the calculation works

scenarioUnits = baseUnits * Math.pow(newPrice / basePrice, elasticity)

baseRevenue = basePrice * baseUnits

scenarioRevenue = newPrice * scenarioUnits

baseContribution = (basePrice - unitCost) * baseUnits

scenarioContribution = (newPrice - unitCost) * scenarioUnits

contributionChange = scenarioContribution - baseContribution

Elastic demand can increase revenue after a price cut while still reducing contribution. Profit depends on the margin lost as well as the volume gained.

A worked example

At €50 and 1,000 units, an assumed elasticity of -1.5 predicts 1,397.54 units at €40. With €25 variable cost, contribution falls from €25,000 to €20,963.14 even though revenue rises from €50,000 to €55,901.70.

Use it carefully

• Both prices must be strictly positive, and all inputs and outputs must be finite.
• Use a signed elasticity of zero or below for a conventional downward-sloping own-demand scenario.
• Capacity, inventory, competitor responses and campaign fixed costs are not modeled.
• The power formula assumes constant elasticity throughout the price interval. This is a modeling choice, especially consequential for large price changes.
• A regression coefficient is not automatically a causal elasticity. Promotions, endogeneity, stockouts and weak price variation can affect its interpretation.
• Enter several plausible elasticities to see how sensitive the decision is to the assumption.

Common questions

Why does the calculator use a negative elasticity?

The signed convention represents quantity falling when price rises. Some reporting tools show the absolute magnitude; convert a displayed magnitude of 1.5 to -1.5 here.

Does this estimate my product's elasticity?

No. It calculates the demand curve implied by an elasticity you supply. Estimation requires suitable data and a defensible model or experiment.

Related calculations

Further context: OpenStax: definition and interpretation of price elasticity. Equations and examples were independently prepared for this calculator.