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.
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.