Price elasticity is defined in our text as the change in relationship between a change in the quantity demanded and price. When price elasticity is greater than 1, it’s considered “somewhat elastic” so that when the price increases the revenue decreases. This is due to the quantity being changed so significantly it results in a lost in revenue. In a short period of time, this elasticity may not be detrimental but a wide market change could drive away customers and hurt the company. Cross price elasticity is a measure of changes in quantity demands. This determines the affects the demand for a product in relation to its substitutes. The elasticity for the cross price is at 0.68. The cross price represents the effects of the quantity demanded of one good to a change in price of another good. This elasticity is positive, as its substitutes price rise the …show more content…
Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation. With the elasticity of price being highly elastic and negative, any reduction in price leads to high sales. Nonetheless, this is only possible where the elasticity quotient is 1. Where the quotient is more than 1, a reduction in price results in increased demanded quantities and a subsequent increased sales until the point of unity. Price reduction will likely increase market share for the company as well as increase revenue. 4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further assume that the price changes are 100, 200, 300, 400, 500, 600 dollars. A. Plot the demand curve for the firm. Keeping all the other variables constant, the demand function can be written as, Q = -5200 - 42*P + 20*600 + 5.2*5500 + 0.2*10000 + 0.25*5000 Q = 38650 - 42P B. Plot the corresponding supply curve on the same graph using the following MC / supply function Q = -7909.89 + 79.0989P with the same
...s are doing well and over the many years have gone up. The company has not lawsuits currently pending which is good. The company as a whole seems to be growing even when the market is down.
Price is how much to sell your products for. This is based on your cost and product value to potential customers. I believe that price is important and you will definitely attract customers with the lure of cheap prices, especially at Christmas time. How many people just recently woke up at 4 a.m. just to get in line for several hours so they could get a great deal and save a few dollars? I believe that it works to motivate certain customers, but there are still consumers out there who are not interested getting stampeded during a price reduction sale.
The demand curve follows a distinct line unless some other factor causes the line to shift. The demand curve operates under the principle if the demand goes up the price goes down, and likewise if the demand goes down the price goes up as long as all other things are constant. A shift in the demand curve indicates something is not constant. In the simulation, a company named Lintech expanded its operations to Atlantis. The expansion increased the population of Atlantis changes the demand for apartments, but does not change the supply of apartments in the area. The sudden shortage of apartments created a demand curve shift. The shift permits Goodlife to offer a higher price for their 2 bedroom apartments, and still be able to fill the same number of units. By increasing the price, Goodlife brought the price and quantity available back into equilibrium (University of Phoenix, 2014).
Elasticity is the responsiveness of demand or supply to the changes in prices or income. There are various formulas and guidelines to follow when trying to calculate these responses. For instance, when the percentage of change of the quantity demanded is greater then the percentage change in price, the demand is known to be price elastic. On the other hand, if the percentage change in demand is less than then the percentage change in price; Like that of demand, supply works in a similar way. When the percentage change of quantity supplied is greater than the percentage change in price, supply is know to be elastic. When the percentage change of quantity supplied is less then the percentage change in price, then the supply then demand is known to be price inelastic.
The price elasticity of demand is a measurement that illustrates the responsiveness to changes in price of the demand. For example, it is specifically related to the simulation in regards to shifting the price up and measuring how much the demand falls. It is a percentage change in quantity. The presence of substitute goods, such as detached housing, has the effect of increasing the price elasticity of the demand. Housing is a necessity, which helps to hone down the elasticity. The revenue is maximized when the elasticity is equal to one.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
Looking at price elasticity we see that the absolute value is greater than one. This means that if the company decided to increase the price of the product there would be a decrease in quantity sold. From the data we can conclude that the price elasticity is elastic. “When demand is elastic—that is Ed >;1—a given percentage increase (decrease) in price is more than offset by a larger percentage decrease (increase) in quantity sold” (McGuigan, Moyer, and Harris, 2014). Since, the product is somewhat elastic an increase in price will result in lower quantity
Implications for each of the computed elasticities for the business regarding short-term and long- term pricing strategies.
As the firm’s prices increase, the customer demand for their product (buildings) decreases. I was able to figure this out with numbers I received from the 2016 Annual Report. Lendlease produces a normal good, so as the income of the consumer/customer increases, the demand for Lendlease should increase. The crossed elasticity depends on whether you are looking at a competitor of Lendlease or a company that complements Lendlease. A competitor would put you at a crossed elasticity above zero, meaning that as the price of the competitor increases, the demand for Lendlease would also increase. If you were looking at a complement of Lendlease (an electrician, plumber etc.), you would have a crossed elasticity below zero. So if the price of using an electrician/company goes up, the quantity of buildings that Lendlease can produce goes down, since it costs more per project to use that
When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price
As the supply curve moves in the automobile industry, the equilibrium price and quantity sold will change with this shift. When the automobile manufacturers see this shift in supply, they will then raise their prices and the quantity sold will fall. Car manufacturers will also develop...
Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.
When the price of raw material will go up or down, the production coats will rise or fall. Secondly, the price of substitute products also affect the supply curve. Because the relatived products are competitive relationship, when the price of one product goes up, another will goes down. It will affect suppy. Thirdly, production technology will affect the supply curve. When the level of technology is rising or falling , the production costs will go down or up. finally, the government policies will affect the supply curve. Positive policies will make the supply go up, conversely, it will go down. For example, the govenrment limit the amount of cars which people can buy, it will caused the supply curve down. In addition, the price of product in the future and the development of product company will also affect the supply
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
...e enough because the company has chosen the best possible way to increase the company performance. The pricing strategy is the company’s best strategy from all because it affected the sales revenue a lot. Although fluctuating the price is quite risky for a business since the customers might order from other companies if the company doesn’t do it properly, but XXX Company manage to done it well so far. The effectiveness might also be seen by the average of sales revenue between January to August from 2011 to 2013.