What Is Total Expenditure?

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Total expenditure is a measure used by companies to predict the amount of revenue made on a given product. It is a function of both price and the number of products purchased. Companies choose pricing strategies to maximize total expenditure because they reflect on the revenue they receive.

Calculation Station

  • Total expenditure is easy to calculate. Simply multiply the number of products sold by the price of each product. For example, if a company sells 100,000 USB drives at a price of $50 each, total expenditure is $5 million.

Price and Demand

  • Consumer demand for some products goes up as the price goes down. If the company selling USB drives drops the price to $30 from $50, customers may be more inclined to buy. For example, a company selling USB drives at $30 each may sell 250,000 of them, increasing total expenditure to $7.5 million. Companies try to set prices that maximize demand for their product and therefore total expenditure.

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