Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
As such, when evaluating the change in profit, we need to consider both alternatives and how the possible responses from the competitor will affect it. In the first case, with no response from the competitor, as I have mentioned previously, net sales are likely to increase due to positive price elasticity. In order to evaluate whether the net revenue is modified, we should use a figure example, considering the quantity sold
100 and price P = 10. The total net sales is 1000. On a 10% price cut (P = 9), we should estimate the quantity Q. At 115 (it shouldn't go up to 25%). As such, the net sales will be V = 1035, an increase of 35 units or 3.5%.
In the second scenario, the price cut will implicate a response from the competitor. The quantity will initially increase, only to later decrease after...
In my opinion, we will be encountering, in the end, an overall decrease in overall net revenues to 850 or 900. This will be the equivalent of a reduction in profit.
As such, this issue has proved one of the essential rules in economics and business: there are only a few situations where the company plays by itself. In almost all other cases, the company is forced to adapt its responses and moves to those of the competitors on the market, otherwise, not considering them will lead to a loss in overall profits, as we have seen previously.
Bibliography
1. Price Elasticity. On the Internet at http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html
Price Elasticity. On the Internet at http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html
Bibliography
1. Price Elasticity. On the Internet at http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html
Price Elasticity. On the Internet at http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html
Price Elasticity Airlines The piece "Airlines try cutting business fares, find they don't lose revenue" explains how major airline firms in 2002 cut their business travel fares in an attempt to generate more business "and bring back business travelers who are staying at home, buying in advance or running to discount airlines" (McCartney, S. November 22, 2002). Of particular interest in this dynamic is the effect on total revenue generation resulting
Economics Problem Coca-Cola in dispensers located on a golf course sells for $1.25 a can, and golfers buy 1,000 cans. Assume the course raises the price to $1.26 (assume a penny raise is possible) and sales fall to 992 cans. Using the midpoint formula, what is the price elasticity of demand for Coke at these prices? Assume the demand for Coke is a linear line. Would the elasticity of demand be elastic or inelastic
Pricing Strategy Price Reduction Strategy What are the implications for revenue and profits of implementing the price cut? The implications for revenue and profits are dependent on the demands and supply of the product. If there is not enough demand for the product, a reduction in the price of the product by 10% is unlikely to boost the demand of the product. On the other hand, if there is sufficient demand of the
Accounting Economics Marginal Analysis Define marginal revenue. Explain its relationship with total revenue. Marginal Revenue (MR) is the revenue that is linked to one more additional unit of production. The demand for the product will determine whether it will be higher or lower or even the same as the previous unit of production revenue. MR can be defined therefore as the addition realized revenue to the Total Revenue (TR) by a unit increment in
Economic Analysis of Australian Fruit and Vegetable Market Severe flooding in Queensland in late 2010 and early 2011 "affected an area the size of France and Germany combined" (IBISWorld.com. January 2011. PP. 1), and contributed to massive spikes in fruit and vegetable prices across Australia on the order of 20 to 30% (The Sydney Morning Herald.com. January 11, 2011. PP. 1). Specific examples of these increases include: "broccoli jumping to $10
Pizza Shop Demand Forecasting Pizza Company Entry: Consumer Demand Forecast There are a number of issues a company needs to think about before entering any particular market. In an industry such as the food service industry, there are even more factors to consider. Entering into any market can be a gamble, yet food service is often even more vulnerable in regards to the already strong presence of successful competitors and the