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Abstract

This study applies first principles in micro economics relating to price elasticity of demand to explore a new concept called the ‘price elasticity of contribution’ to help businesses adopt pricing strategies for the maximisation of contribution. The study derives a new proof for the maximisation of revenue and profit, using the point elasticity of demand equation to simplify the traditional management accounting methodology for algebraically calculating the price at which business revenue and profit are maximised. The study uses one example throughout to demonstrate the proof and to illustrate the concepts introduced.