Price Elasticity Essays (Examples)

Elasticity of demand and supply as price increases is an important concept which helps us understand how changes in price affect demand for a certain product. In this case, we shall be discussing the price elasticity of beef and eggs to see how the price changes for each would affect demand for them. In true economic sense, price changes have an impact on consumption patterns and hence on demand provided the income and other factors remain constant. In this case, we assume that price of beef and eggs has increased but all other factors including income have remained unchanged.

INCEASE IN THE PICE OF BEEF:

Let us assume that price for one pound of beef was previously $1.50. But in the last one week, it has risen considerably to $2.25 per lb. Since income is constant, that factor doesn't come into play and only price alone can be held responsible…

References:

John P. Workman, Sam L. King and Jack F. Hooper. Price Elasticity of Demand for Beef and Range Improvement Decisions. Journal of Range Management. Vol. 25, No. 5 (Sep., 1972), pp. 338-341

Elasticity is a concept in microeconomics that reflects "the degree to which a demand or supply curve varies among products" (Investopedia, 2013). Thus, the degree to which demand or supply of a good changes with a change in the price. This dynamic can be calculated using the following formula:

Elasticity = (% change in quantity / % change in price)

In general, a good is characterized as elastic if the change in quantity is greater than the change in price, in other words if E > 1. If the change in quantity is lesser than the change in price, demand for the good is considered to be inelastic. If the demand changes exactly as the price changes, in order words if E = 1, then the good is said to be perfectly elastic. Perfect elasticity is uncommon, and is observed mostly in theoretical examples (Moffatt, 2013). There is also reverse…

Works Cited:

Investopedia. (2013). Economics basics: Elasticity. Investopedia. Retrieved April 20, 2013 from  http://www.investopedia.com/university/economics/economics4.asp 

Moffatt, M. (2013). Price elasticity of demand. About.com. Retrieved April 20, 2013 from  http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm

Elasticity of Demand

Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand

Price elasticity of demand is the measure of the change in the demand of a given product as a response to a change of its price. When demand is inelastic (a value versatility less than 1), a value increase raises downright income, and a value reduction lessens absolute income. The point when interest is elastic (a value versatility more remarkable than 1), a value expansion lessens all out income, and a value decline increases downright income. The point when demand is unit elastic (a value versatility equivalent to 1), a change in cost does not influence absolute income (Dewett, 2010).

Discuss cross price elasticity as it pertains to substitute goods and complementary goods.

The Cross-Price Elasticity of Demand is used in measuring the rate of reaction of the amount requested of one item arising…

References

Dewett, K.K. (2010). Modern economic theory: Micro and macro analysis. New Delhi: Shyam Lal Charitable Trust; sole distributors: S. Chand.

Taylor, J.B., & Weerapana, A. (2012). Principles of microeconomics. Mason, OH: South-Western Cengage Learning.

: Demand curve where demand is elastic, inelastic and unit elastic

Prices should be increased to the point on the demand curve where marginal profit is at its highest (AmosEB, 2009).

Having an understanding of price or income elasticity of demand helps the firm to set its prices. It may also help to determine price floors as well. In addition, strategy and marketing can be affected as well. hat was once a sale price could become a new selling point; what was once thought too high for our product positioning could actually be our ideal price point. Understanding how your customers react to the moves that you make is an essential component of business success. All private sector leaders should be focused on finding the point on the demand curve with the highest possible profit.

orks Cited:

No author. (2009). Economics basics: Elasticity. Investopedia. Retrieved December 7, 2009 from http://www.investopedia.com/university/economics/economics4.asp

Friedman, M. (1970). The social responsibility of business is to increase…

Works Cited:

No author. (2009). Economics basics: Elasticity. Investopedia. Retrieved December 7, 2009 from  http://www.investopedia.com/university/economics/economics4.asp 

Friedman, M. (1970). The social responsibility of business is to increase profits. New York Times Magazine. Retrieved December 7, 2009 from  http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html 

No author. (2009). Marginal revenue and demand elasticity. AmosWEB. Retrieved December 7, 2009 from  http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=monopoly,+marginal+revenue+and+demand+elasticity

Price Targeting Industry

Customers usually complain that they purchased the same product or service at higher price than their friends did. This is actually the price targeting technique that sellers use in order to receive maximum profits or revenue. However, if the customers are aware of the actual price and sellers' technique then they can make a better deal.

Price Targeting

Price targeting is one of favourite techniques of vendors to earn more profits since they can sell the same product or service at different prices to different customers. y this method, vendors identify point of transaction where consumer decides to purchase the product or service and is ready to pay amount close to the maximum price. Thus, the vendors may capture the consumer surplus.

Retailers make discrimination in prices because consumers also hide the maximum price that they are willing to pay off for the particular product or service.…

Bibliography

Avert. (n.d.). AIDS, Drug Prices and Generic Drugs. Retrieved from avert.org:  http://www.avert.org/generic.htm  dnanews. (2012, July 21). AIDS Deaths Worldwide Drop as Access to Drugs Improves. Retrieved August 30, 2012, from dnanews.com:  http://dnanews.com.pk/?p=238 

history-society. (2009). Fundamentals of Business. Retrieved from history-society.com: http://www.history-society.com/an-example-of-price-index.html

Hornbeck, R. (2005). Price Discrimination and Smuggling of AIDS Drugs. Topics in Economic Analysis & Policy.

Martinez, L. (2010, November 16). What is Price Targeting and How Does it Affect You? Retrieved August 30, 2012, from fivecentnickel.com:  http://www.fivecentnickel.com/2010/11/16/what-is-price-targeting-and-how-does-it-affect-you/

Add to this the hassle of tightened airport security, threats of disease outbreaks such as SARS, and increased risk of terrorism, and conferencing has become a booming market.

The price of compliments such as lodging and car rentals is increasing. The overall lodging industry earned an estimated $20.8 Billion in profit before taxes in 2005, and those earnings are expected to increase by 21% in 2006 thanks to an increase in revenue per available room defined as the occupancy rate times average daily room rate. In the second quarter of 2006, one of the world's largest hotel chains, the Marriott, has an increase in net income of 100% over the 2005 quarter. Revenue per available room was up 8.4% over 2005, the most in more than 20 years. Improved demand combined with higher supplier costs is placing upward pressure on car rental rates and surcharges. Average daily car rental costs…

Works Cited

2005 total airline system passenger traffic up 4.5% from 2004. (2006, April 27).  http://www.bts.gov/press_releases/2006/bts020_06/html/bts020_06.html 

Air travel demand elasticities: Concepts, issues and measurement.  http://www.fin.gc.ca/consultresp/Airtravel/airtravStdy_3e.html 

De Lollis, B. (2004, September 7). Talking heads are catching on as Web meetings take off. USA TODAY.  http://www.usatoday.com/money/biztravel/2004-09-07-conferencing_x.htm 

Fact sheet: U.S. Hotel industry & record profits http://72.14.253.104/search?q=cache:ec7xQnsiWBUJ:www.hotelworkersrising.org/media/RecordProfitsFactSheet.pdf+%22hotel+industry%22+%22occupancy+rate%22&hl=en&gl=us&ct=clnk&cd=16

Price and Quantity of Milk

A Scientific Study Declares Milk Good for the Human Body

In such a case, the quantity of milk demanded will increase. The increase in the quantity of milk demanded in this scenario can be attributed to the change in customer preferences. Here, the number of customers demanding the product (for its declared benefits) will increase. Further, it is also likely that the existing consumers of milk will increase their consumption of the same. The demand curve in this case will shift to the right.

Outbreak of the Mad Cow Disease

In this scenario, the quantity of milk demanded will not change. The reason for this has got to do with the fact that so far, there is no evidence linking the consumption of milk from cows having the mad cow disease with any adverse health effects on those who consume such milk. The key assumption…

References

Baumol, W.J. & Blinder, A.S. (2011). Economics: Principles and Policy (12th ed.). Mason, OH: Cengage Learning.

Gillespie, A. (2007). Foundations of Economics. Great Clarendon Street, Oxford: Oxford University Press.

Lipsey, R.G. & Chrystal, K.A. (2007). Economics (11th ed.). Great Clarendon Street, Oxford: Oxford University Press.

Elasticity of Demand

Demand elasticities in government

Elasticity of demand and effect on indirect taxation.

Demand elasticities in business

Factors that affect the price elasticity of demand

In this paper, we discuss the microeconomic concept of elasticity of demand. Elasticity of demand, a term which refers to the responsiveness of the demand of a given commodity to change is very integral for the efficient operation of businesses and the government (Hays and DeLurgio,2008).The concept of elasticity of demand which in a way may refer to the responsiveness of the amount of quantity of a product which is demanded to the change in disposable income, price of a good as well as price of related goods is noted to be a subject of discussion in virtually all the textbooks on microeconomic principles. In this paper, we perform a critical evaluation of the view that the knowledge of the various elasticities of…

References

Bronfenbrenner .M (1940).Applications of the Discontinuous Oligopoly Demand Curve

Journal of Political Economy Vol (48)3 pp. 420-427

Diewert, WE (1971).A Note on the Elasticity of Derived Demand in the N-Factor Case

Economica New Series, Vol. (38) 150. pp. 192-198

The interest of certain categories of public in promoting this trend has significantly intensified. Therefore, the demanded quantity of organic products is likely to increase.

2. There are several factors that influence the organic products supply. The most important factors are represented by prices, costs of production, prices of traditional products, weather, and technology. In the case of the influence of prices, if they increase the supplied quantity of organic products is likely to increase also, because the company is interested in increasing its profits. The costs of production are also very important. If these costs increase, it will be more difficult for the company to produce these products, leading to reduced supply.

The prices of traditional products can determine the purchasing behavior of organic products buyers. If prices of traditional products increase, becoming similar to those of organic products, some of these customers can orient towards organic products, leading…

Price and Quantity of Milk When the Following Events Occur:

An advertising campaign highlights scientific studies that find drinking milk can help reduce weight gain.

Demand: the demand of milk will increase because it also serves another purpose i.e. weight reduction. The demand curve will move to the right to depict increase in quantity demanded. People are investing so much in weight reducing items like slim fast shakes, diet pills etc. If milk is able to offer the desired weight reduction, even those who were not using milk previously will now do so because it will serve two important purposes i.e. calcium requirement and weight reduction.

Supply: with increase in quantity demanded, supply will increase too. Supply curve will likewise show an upward shift

There is a mad cow disease epidemic.

Demand: demand or quantity demanded will decrease because mad cow disease can directly affect quality of milk. Demand of…

Pricing Strategy

Price eduction 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 product, a 10% reduction in the price of the product will have direct effect on the revenue and profits of the company. The reasoning behind is that the price elasticity of the product is 2.5%, higher than 1. Therefore, a reduction of 10% in the price will have about 2.5 times effect in the demand of the product. As far as meeting the target by the marketing managers, the managers would find it easier to meet its…

References

Kotler, P. (1991). Marketing Management. New Jersey: Prentice Hall.

McConnell, B. (2001). Economics-Principles, Problems and Polices. New York: McGraw-Hill.

sex education is designed to increase teenagers "tastes" for premarital sex? How could it act to increase those "tastes"?

The desire for sexual contact is a natural, innate human desire and is not something that can suddenly be stimulated by knowledge like an advertising campaign can make you thirsty for soda. It is possible that sexual education can normalize sexuality and remove a sense of guilt teens might have; however, it can also normalize safe sex and abortion.

Why could the two consequences of sex education discussed above either raise or lower the number of teenage pregnancies that result?

Sex education can lower the number of teenage pregnancies by providing accurate information to teens about sexuality and disabusing them of myths such as the idea the withdrawal method is an effective form of birth control. It can also provide them with information about the best methods of birth control possible.…

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 at 75 cents a can?

At $2.00 a can?

It would be far too narrow and incorrect to think of the concept of price elasticity as something which is connected solely to a mathematical formula. Pricing is a strategy which is an aspect of marketing which should not be based on guesswork as it is something which communicate the value of a product. "Price elasticity is the measurement of how quantity demanded of a good will…

References

Guo, V. (2012) Price Elasticity 101. Priceintelligently.com. Retrieved from:

 http://blog.priceintelligently.com/blog/bid/154374/Price-Elasticity-101-The-Necessities-and -

Your-Pricing-Strategy

and, as mentioned before, discrimination allows for a more flexible reallocation of capital, benefiting the customer by increasing research and development of other goods and services.

In the article "Taken to the Cleaners?" The author presents a real world case where dry cleaners are seemingly arbitrarily using price discrimination to mark up the price of dry cleaning for women's blouses vs. men's shirts. This is definitely a third-degree price discrimination, where different consumer's pay different prices. There are two separate markets, one composed entirely of men (or women who wear men's clothes), and the other composed entirely of women. Each is forced to pay different amounts for essentially the same service, thus this is price discrimination of the third degree. (Taken to the Cleaners?, 1998)

There are many real life examples of price discrimination. Take, for instance, the ubiquitous feature of most bars and nightclubs, "Ladies' Night," which offers discounts…

Works Cited

Price Discrimination. (2008). Retrieved June 25, 2010 from Economics Help:  http://www.economicshelp.org/?microessays/?pd/ ? price-discrimination.html.

Price Discrimination. (2008). Retrieved June 25, 2010 from Spiritus-Temporis: http://www.spiritus-temporis.com/?price-discrimination/? examples-of-price-discrimination.html.

Taken to the Cleaners? (1998). Retrieved June 25, 2010 from Slate:  http://www.slate.com/?id/?2050/ .

The article gives the example of China, where as much as $360 billion were allocated by the government towards the process of stimulating demand on the market. The process did not target only the car manufacturers, but rather all industries, while the instruments of actually putting the money to use ranged from fee vouchers to direct stimuli for the businesses. Countries such as Germany or the U.S. put in more money than ritain into stimulating the car industry, important in the overall national economy of these countries and, at the same time, a potential social issue.

However, as the author pointed out, this was not the case in ritain, where the amount of money allocated for boosting supply was significantly lower than in these other comparable economies. The process of exchanging an old car for a new one, referred to as the "car scrappage scheme," was given only 400 million…

Bibliography

1. Jenkins, Simon. October 2009. These snobs are blind to the one economic policy that works. The Guardian. On the Internet at These snobs are blind to the one economic policy that works. Last retrieved on November 7, 2009

Jenkins, Simon. October 2009. These snobs are blind to the one economic policy that works. The Guardian. On the Internet at These snobs are blind to the one economic policy that works. Last retrieved on November 7, 2009

Price elasticity for this product was likely quite great, before the item was subsidized, as few consumers perceived it as a necessity. Only the costs of production limited the price elasticity, as the tanks are presumably not cheap to build. Of course, the government might protest that the product is a necessity, given the dire need for conservation, if Australia is to continue to have a sustainable source of drinking water. But preserving the environment is often a case where the micro interests of the household do not match up with the macro interests of the nation. Until the subsidy was created, a household in the short-term could save money by not purchasing the rain water tank, although in the long run the household may save both on water bills and also upon more costly solutions needed by the government, to ensure that the nation has a sustainable source of…

Works Cited

Economics basics: Demand and supply. Investopedia. February 15, 2010.

 http://www.investopedia.com/university/economics/economics3.asp 

Economics basics: Elasticity. Investopedia. February 15, 2010.

 http://www.investopedia.com/university/economics/economics4.asp

(Png; Lehman, 2007)

As far as supply is concerned, if one were to assume that all the firms within an industry, like for example, in a government holding, are identical, then a market supply curve would be made up of the supply curves of all the supply curves of the individual producers in the country. (Adams; Periton, 2006) the elasticity of demand therefore measures the responsiveness of the demand to the changes in the factors that may affect demand. Therefore, this means that the elasticities of demand can be estimated for price, income, prices of related products or services, and the advertising expenditure needed. (Png; Cheng, 2001) as far as the factors affecting elasticity of supply are concerned, one must note that the longer the time one takes over the supply of a product or a service, the more elastic the supply becomes. Supply is stated to be elastic if…

References

Das, Satarupa. (2005, Apr) "The Concept of elasticity in economics" Retrieved 14 December, 2007 at  http://www.nvcc.edu/home/sdas/elasticity/ 

Piana, Valentino. (2004) "Elasticity" Retrieved 14 December, 2007 at  http://www.economicswebinstitute.org/glossary/elasticity.htm 

N.A. (n. d). "Economics basics, elasticity" Retrieved 14 December, 2007 at  http://www.investopedia.com/university/economics/economics4.asp 

Wessels, Walter J. (2000) "Economics"

Economics

A price discrimination strategy is one where different customers are charged different amounts. The price charged for my shop's submarine sandwiches will therefore be different for locals than for visitors. There are a number of ways to achieve this. In the context of a sandwich shop, the prices are going to be listed publicly on the menu, so it is impossible to openly discriminate with respect to prices. One technique that can be utilized to lower the average cost for each sub-for locals is to offer a loyalty card. The local would then receive either a discount or a free sub-after making enough purchases. This would deliver a lower price to locals in the long run. Alternately, a loyalty club can allow the locals to receive discounts if they are members of the club. A certain amount of annual sales would be required for club membership, or even a…

Works Cited:

Investopedia. (2010). Perfect competition. Investopedia. Retrieved October 16, 2010 from  http://www.investopedia.com/terms/p/perfectcompetition.asp 

ACC. (2010). U.S. antitrust agencies issue revised merger guidelines. Association of Corporate Counsel. Retrieved October 16, 2010 from  http://www.lexology.com/library/detail.aspx?g=cf23ba87-0ed6-4db5-9739-d7cf74bcdf8f

S.

2.

Movie theaters should solve their problem by allowing for market pricing on seats at different showings. I would borrow a system that is in place at some discount airlines. This is a good business to take cues from because, like the movie theater business, they have regularly scheduled but perishable supply. The prices for each seat would depend on how many seats for the showing remained. The first, say, ten seats in the theater would be the lowest-priced, and then the prices can increase as the number of remaining seats decreased. The theater would therefore encourage people to forgo a popular showing for a less-popular one because of the money saved

The downside to this approach is that it does not explicitly solve the problem of having capacity overages. If there is excess supply, then the theater is simply shuffling the same number of customers around between different…

Works Cited:

McConnell, C., Brue, S. & Flynn, S. (2009) Economics: Principles, problems and policies, eighteenth edition. McGraw-Hill. Chapter 3.

McConnell, C., Brue, S. & Flynn, S. (2009) Economics: Principles, problems and policies, eighteenth edition. McGraw-Hill. Chapter 6.

Second Degree Price Discrimination

Many companies may practice second-degree price discrimination without realizing it by offering volume discounts or charging more for higher quality products or services. To determine what second-degree price discrimination is in real-world settings and to identify appropriate examples of the practice, this paper reviews the relevant literature concerning second-degree price discrimination, followed by an analysis of its important aspects from an economic theoretical perspective. An examination concerning how producers discriminate between different types of consumers is followed by a discussion concerning welfare implications in the example and the potential role for governments to regulate this practice. A summary of the research and important findings are presented in the conclusion.

eview and Discussion

Whenever companies offer their products or services at a discounted price for volume purchases or set higher or lower prices depending on the quality of those goods or services, they are practicing second-price discrimination.…

References

Burkett, J.P. 2006 Microeconomics: Optimization, Experiments, and Behavior. New York:

Carroll, K. & Coates, D. 1999 'Teaching Price Discrimination: Some Clarification.' Southern

Economic Journal, vol. 66, no. 2, p. 466.

Wilson, R.B. 1993 Nonlinear Pricing. New York: Oxford University Press.

It could not be expected that these measures would have an immediate impact on gasoline demand. Changes are likely to take some time before the real impact is felt. However, this slowing of demand growth is indicative that the process has begun and that it will continue to grow in the future.

Exploring Alternatives

The answer to resolving the issue of gasoline price in the future is the same for both short- and long-term goals. In order to control gasoline prices, supply and demand must be kept in a near-equilibrium state. However, OPEC will never allow this to happen, as this means that they are unable to maximize their profits by using their intricate knowledge of price elasticity and the market. The only reaction that the U.S. government has is to find alternatives to OPEC gasoline and to continue to find ways to decrease U.S. demand. Decreases in U.S. demand…

References

Horsley, S. (2006). Q & a: What's Behind High Gas Prices? NPR. Business. 27 April 2006. Retrieved 15 February 2009 at  http://www.npr.org/templates/story/story.php?storyId=5365439

Likewise at the upper end the potential demand will equal zero at a given price point, thus there is no point at which a sale of one unit at near-infinite product exists.

The equilibrium point will be different for each product, but will always be the point at which total dollar profit is maximized. A steep decline in price may mean a steep increase in sales, but the result may be lower profit than if the margin was higher and sales lower. Thus, the best point at which the retailer would want to own a business that sells price elastic products is when the price is at the point of equilibrium that enables the retailer to maximize profit.

orks Cited:

No author. (2009). Economics Basics: Elasticity. Investopedia. Retrieved September 13, 2009 from http://www.investopedia.com/university/economics/economics4.asp

Moffatt, Mike. (2009). Price Elasticity of Demand. About.com. Retrieved September 13, 2009 from http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm

Works Cited:

No author. (2009). Economics Basics: Elasticity. Investopedia. Retrieved September 13, 2009 from  http://www.investopedia.com/university/economics/economics4.asp 

Moffatt, Mike. (2009). Price Elasticity of Demand. About.com. Retrieved September 13, 2009 from  http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm

Oil prices across the globe are characterized by major swings and fluctuations, which have attracted considerable attention from scholars, policymakers, and practitioners. The increased attention in oil prices are attributable to the fact that they have significant impacts on the global economy. Based on academic literature, oil prices fluctuate for various reasons including supply disruptions, changes in global demand, and precautionary intentions. For instance, in the aftermath of the 2008 global economic recession, oil prices fell because of an overall decline in global demand (Lee & Huh, 2017). Fluctuations in oil prices have been evident since 2012 to the end of 2016 because of various factors that contribute to changes in these prices. Despite these various factors, there are several measures that are utilized to predict oil prices in the future. This paper discusses the reasons for changing oil prices, oil price fluctuations between 2012 and 2016, and prediction of…

References

Amadeo, K 2017, Oil Prices Forecast 2017-2040, The Balance, viewed 6 April 2017,

Arab News 2017, Oil Prices to Average $50 and $70 through 2022: Report, Arab News, viewed 6 April 2017,

Asia Pacific Energy Research Centre 2016, The Effect of the Crude Oil Price Drop on the Global Energy Market, Asia Pacific Energy Research Centre, viewed 6 April 2017,

Baumeister, C & Kilian, L 2015, Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us, University of Michigan, viewed 6 April 2017,

Surge Is Unlikely for Prices of U.S. Gas," by Clifford Krauss (Krass, 2013). There were four main points of distinction embedded within the article. The first and arguable most important element within the article was in reference to the growing conflict in Syria. The article was written in late August when unrest in the Middle East was near its height. During this period, Americans were concerned with the subsequent rising oil prices that might occur due in part to the civil unrest occurring in Syria. The article first explains how gas prices are unlikely to increase due to a litany of factors. First, Syria is a very small oil exporter. It exports roughly 1% of the world's oil. As such, even if the entire country were to be engaged in war, the resulting damage in regards to oil exports would be minimal. Many pundits believe that the rippling effect of…

References:

1) Kay, Jane Holtz, Asphalt nation: how the automobile took over America, an how we can take it back, New York, Crown, 1997. ISBN 0-517-58702-5

2) Krass, Clifford. "Major Surge Is Unlikely for Prices of U.S. Gas." New York Times. N.p., 30 Aug. 2013. Web. 20 Oct. 2013.

3) Seale, Patrick (1987). The Struggle for Syria. ISBN 978-0-300-03944-3

4) "New Billions In Oil" Popular Mechanics, March 1933. article on invention of water injection and detergents for oil recovery

Calculate the Profit-Maximizing Price

Economics

To calculate the profit-maximizing price and output level of the firm, the paper starts from price $10 to $200. The paper uses the Excel software to calculate the quantity, revenue, marginal revenue, variable costs, total costs and marginal costs. The fixed costs of the firm are $120, which does not change no matter the level of quantity produced.

However, the variable costs decline with the increase in the quantity produced. The marginal costs remain the same.

Based on the calculation in the Table 1, the profit-maximizing price is $120, which is the price the marginal revenue reaches its peak at $2,590. The increase in production at this level will make the marginal revenue to decline from $2,590 to ($2,410) as being revealed in the Table 1. As the firm increases the production, the total revenue increases, however, when the total revenue reaches $361,080, this is…

Reference

Mankiw, G.N. (2011). Principle of Economics.( Sixth Edition). Cengage Learning.USA.

Producing inexpensive restaurant meals for McDonald's has been highly profitable, given its ability to sell many burgers quickly and to create standardized franchises all over the world. Having the ability to produce in large volume also buffers a firm against the danger of a price-elastic good getting into a price war with other firms. In the case of Mattel and McDonald's, both firms are so large and have such brand recognition, they are protected to some extent of being forced to sell at such a low price they cannot cover their overhead.

Occasionally, pricing low does not achieve the desired objective: during boom times in some instances, the cheapest goods and services will sometimes experience a drop in demand, while higher-end purveyors will see the goods and services they sell become more in-demand. But selling price-elastic goods always requires clever and deliberate strategizing upon the part of the producer, unlike…

Reference

Price-elastic goods. (2009). Investopedia. Retrieved November 3, 2009 at  http://www.investopedia.com/university/economics/economics4.asp

Elasticities & Market Structure

There are many different factors to consider when making strategic decision such as the one that Autoedge currently faces. The board of directors needs to consider many different implications that might occur if the company decides to relocate its manufacturing to the United States. If the company manufactures its products domestically, then one possible implication might be that this could add value in terms of consumer perceptions. Although it seems that the "Made in the USA" brand maybe a secondary consideration for many consumers, there is some evidence that it does actually add substantial value to products and services. For example, one study found that (Schurenberg, 2012):

"In a study of consumer perceptions of clothing made in the United States vs. that made in China, Jung Ha-Brookshire, an assistant professor at the University of Missouri, found that when offered a choice between a shirt made in…

Works Cited

Bennett, J. (2015, 9 18). 5 Things to Know About the U.S. Auto-Parts Industry. Retrieved from Wall Street Journal:  http://blogs.wsj.com/briefly/2015/09/18/5-things-to-know-about-the-u-s-auto-parts-industry/ 

Schurenberg, E. (2012, November 22). What Is 'Made in America' Worth? Retrieved from Inc.:  http://www.inc.com/eric-schurenberg/what-is-made-in-america-worth.html

While domestic demand has decreased in recent months in response to the price increases, demand in international markets, particularly in China and India, has continued to grow. The nature of demand in those markets means that demand there continues to be inelastic. With expanding economies that are increasing the wealth of the populace en mass, those countries are essentially creating millions of middle class consumers with middle class needs where they didn't exist before. There is no elasticity to the creation of new consumers, as few would reject the opportunity to join the middle class simply because gas prices are on the rise. Twenty years ago, global demand reflected almost entirely demand in the West, which was inelastic. Now that demand in the West is becoming elastic, some clearly feel that this should be the case for global demand as well. But demand in emerging markets is still inelastic, which…

Sources:

Boyon, Nick. (2008). As Gas Prices Near $4.00 a Gallon Nationally, Two-Thirds of American Say they have Changed their Driving Habits. Ipsos. Retrieved June 18, 2008 at http://www.ipsos-na.com/news/pressrelease.cfm?id=3953

Carey, Nick. (2008). FedEx Posts Loss; Gives Low Forecast; Blames Fuel. Reuters. Retrieved June 18, 2008 at  http://www.reuters.com/article/ousiv/idUSWNAS861120080618 

Kaiser, Emily. (2008). Fuel Spike Curbs Vacations, Dining Out. Reuters. Retrieved June 18, 2008 at  http://www.reuters.com/article/ousiv/idUSN1744550120080618 

Douglass, Elizabeth & Gaouette, Nicole & Simon, Richard. (2008). Are Commodities Traders Bidding Up Food, Fuel Prices? LA Times. Retrieved June 18, 2008 at  http://www.latimes.com/business/la-fi-traders21-2008may21,0,2916861.story

Price Setting

Setting the right price is important for any product. There are many different approaches, based on the different variables that can be considered. For a new product in the marketplace, getting the price right is all the more difficult, because there is no prior data to help gauge the strength of the current brand, the price elasticity of demand or other factors that might come into play when pricing an established product. However, there is always an opportunity to adjust prices if the price of a good is not delivering the optimal financial results for the company. Thus, it requires management to have an understanding of pricing strategy in order to determine the most suitable price in the marketplace.

The most important thing to keep in mind is that price is one of the five Ps of marketing. Thus, the pricing strategy must be aligned with the other…

References

Kotler, P., Keller, K., Ang, S., Leong, S. & Tan, O. Marketing Management: An Asian Perspective, Sixth Edition.

NetMBA (2010). Pricing strategy. NetMBA.com. Retrieved February 25, 2016 from  http://www.netmba.com/marketing/pricing/

If the daily paper were more expensive, the elasticity would increase.

In terms of profit, the daily paper is a strong proposition. Clearly priced well above the variable cost, the daily paper takes advantage of the low price elasticity of demand to generate a strong contribution margin.

The $1.99 Sunday newspaper functions similarly to the daily. This paper, however, is packed with far more features. Thus, it is sought out by consumers rather than purchased on impulse. As a result, the price elasticity of demand for the Sunday paper is lower than for the daily editions. The significantly higher price reflects that.

In terms of profit, the Sunday paper is the key driver of contribution margin. The high price, combined with high circulation and strong ad yields, makes the Sunday paper the big earner for the Sun-Times. Low price elasticity of demand contributes to this contribution.

The monthly subscription has…

simulation featured a number of different economic concepts. The first is the issue of the supply curve. Shifts in the supply curves occur as the result of changes in price, or also in changes in demand. When the price of a good in the market changes, firms are likely to increase production. When the price of a good in the market decreases, some firm are likely to reduce or eliminate production. Also, technological improvements can serve to increase supply by making firms in the industry more efficient.

There are also shifts in the demand curve. Such shifts occur when there is a change in the price or a change in the supply. There can also be external shocks such as recession that affect the amount of demand in the economy. When the price of a good drops, this typically will cause demand to increase. When the price of a good…

Economics

In order to understand the ways that different changes in the external environment will affect the demand for milk, some assumptions need to be made with respect to the milk market. e know that demand for milk will increase as wealth increases, which is the result of milk being something of a luxury item (Arnold, 2007). This means that there is some degree of correlation between wealth and milk consumption, and that implies that if wealth declines, milk consumption will also decline.

e also know that demand for milk is somewhat price inelastic. hen prices rise, people still pay them (Dohery, 2007). This is the result of two factors. The first is that there is a baseline demand for milk that is not going to be affected by price. The second is that the demand for milk is affected more by the wealth of the purchaser than the cost…

Works Cited:

Arnold, W. (2007). A Thirst for Milk Bred by New Wealth Sends Prices Soaring. New York Times. Retrieved June 6, 2011.

Dohery, Regan. (2007). Milk Demand Stays Strong Despite High Prices. Reuters. Retrieved June 6, 2011.

No author. (2011). Elasticity of supply and demand. Basic Economics. Retrieved December 13, 2011 from http://www.basiceconomics.info/elasticity-of-supply-and-demand.php

Rittenberg Libby and T. Tregarthen. (2009). Chapter 5: Elasticity and A Measure of Response. Section 1 and 2 only. Principles of Microeconomics. FlatworldKnowledge.com. Retrieved June 6, 2011

Economics

Marginal ate of Substitution (MS) is the rate that an individual is ready to give up from "good A" to obtain one or more unit of "good B" while keeping the overall utility constant. In other words, MS reveals how many units of good x that an individual is ready to give up to gain extra unit of good y while keeping the same level of utility constant. The MS involves the trade off of goods to change the allocation of the total bundles of goods while maintaining the level of satisfaction. Typically, MS is calculated between goods being placed on indifferent curve. The product of cheeseburger and hotdogs is used to illustrate the MS. If the marginal rate of substitution of cheeseburger for hot dogs is 2, thus, consumer will be willing to give 2 cheeseburger to obtain 1 extra hot dog.

However, marginal rate of substitution diminishes…

Reference

Jha, P. Chaloupka, F.J. Moore, J. et al. (2006). Chapter 46 Tobacco Addiction from the book Disease Control Priorities in Developing Countries. Second edition. World Bank.

Demand and supply are the core concepts of economics and these are what determine the price of any given item. When demand of a certain item increases, it is usually followed by a corresponding increase in supply. And thus the price is affected. However there are times when demand increases more sharply than supply and this causes price to move up. In any case, price is directly dependent on supply and demand trends of a commodity. Price elasticity of demand refers to the economic condition when any change in price of a good and service generates some kind of response in its demand. When demand is affected by price, we know that quantity demanded is elastic. On the other hand when demand remains constant or change in price produces insignificant change in quantity demanded, we consider it a price inelastic situation. When a firm wants to change the price of…

References

"Price Elasticity" http://ingrimayne.saintjoe.edu/econ/elasticity/Elastic1.html [Accessed online 12th May 2012]

"The Deamnd Curve" http://ingrimayne.saintjoe.edu/econ/DemandSupply/Demand3.html [Accessed online 12th May 2012]

"Price Elasticity of Demand"  http://www.netmba.com/econ/micro/demand/elasticity/price  / [Accessed online 12th May 2012]

The total supply of milk might remain the same, because the remaining high-efficiency producers are likely to be able to earn profits at this level of output. In the long-run, however, lower prices are going to sustain the quantity of milk demanded at higher than equilibrium levels, and the profits available to producers at lower than equilibrium levels. Producers, in their efforts to control costs, are going to reach a point of diminishing returns on those efforts. The result of this is that the market for milk will eventually become so distorted by the price ceiling that the government is forced to raise the price ceiling in order to ensure that there are producers remaining in the market. The government will have created a situation where to simply maintain the milk market requires active management.

2. There are several factors that contribute to the price elasticity of demand. One factor…

Works Cited:

Rittenberg, L. And Tregarthen, T. (2009). Chapter 3: Demand and Supply. Section 1 and 3. Principles of Microeconomics. FlatworldKnowledge.com. Retrieved December 2, 2011 from: click here

Rittenberg, L. And Tregarthen, T. (2009). Chapter 4: Applications of Demand and Supply. Section 1 and 3. Principles of Microeconomics. FlatworldKnowledge.com. Retrieved December 2, 2011 from: click here

Rittenberg, L. And Tregarthen, T. (2009). Chapter 5: Elasticity and a Measure of Response. Section 1 and 2. Principles of Microeconomics. FlatworldKnowledge.com. Retrieved December 2, 2011 from: click here

Competitor Product's Market

A short history of the organization and a description of their product

Hostess Brands, Inc. is a company set up in 1930 under the name Interstate Bakeries that later changed to Hostess Brands Inc. In November 2009. The company is located in the United States with its headquarters in Irving Texas. It has an operation centre in Kansas City, Missouri. The company works as a distributor and wholesale baker of snacks in the United States. It owns many brands such as Nature's Pride, Wonder Bread, Bakers Inn, Drake's and Dolly Madison. The company makes and sells cakes, loaves, snacks and rolls under different bakery brands (Smith, 2012).

These brands also make blue berry muffins, cheese Danishes, food cake donuts, honey buns and bear claws among others. Hostess gets revenue through selling of baked goods to mass marketers, supermarkets and stores in the U.S. The privately held bread…

References

Blythe, J., & Zimmerman, A.S. (2005). Business-to-business marketing management: A global perspective. London: Thomson Learning.

McEachern, W.A. (2012). Microeconomics: A contemporary introduction. Mason, OH: South-Western Cengage Learning.

Smith, A.F. (2012). Fast food and junk food: An encyclopedia of what we love to eat. Santa Barbara, Calif: Greenwood.

Welch, P.J., & Welch, G.F. (2009). Economics: Theory and practice. Hoboken, N.J: Wiley.

Because passengers in those classes also receive larger seats, there is also some opportunity cost associated with those seats. There are simply fewer paying fares per square meter in those classes as a result of the larger seats. So to some extent, the price discrimination reflects both service and opportunity cost. However, the additional cost of serving these passengers is not as great as the differential in the ticket prices.

In addition, there is price discrimination in terms of when the ticket is purchased. Economy class and business class tickets cost more when purchased closer to the flight date. This reflects that buyers purchasing at the last minute are less likely to be price sensitive than buyers purchasing well in advance. Advance purchasers tend to be vacationers, who have a higher price elasticity of demand. Last minute purchasers tend to have low price elasticity of demand, as they need the…

Works Cited:

McAfee, R. (2008). Price discrimination. Issues of Competition Law and Policy. Retrieved November 16, 2010 from  http://www.mcafee.cc/Papers/PDF/ABAPriceDiscrimination.pdf

Introduction

As the GM Case Study indicates, competition between the local brand and the foreign brand can give the local brand an edge especially when the foreign brand has more cost attached to it. GM, for example, was obliged to cut the costs of its cars in China because the national brands were gaining market share “by offering cheaper sport utility vehicles” (Bloomberg, 2015). In Kuwait, there is a lot of potential for local businesses to grow and edge out foreign competitors. In various fields, Kuwait is showing potential and innovation. It is behind only Saudi Arabia and Turkey in the number of scientific and technological patents produced (USPTO, 2015). Kuwait has emerged as a leader in Gulf Cooperation Council (GCC) countries in terms of innovation (“Kuwait sees fastest growth of GCC countries obtaining patents,” 2016). And as the Kuwait Times (2018) reports, “Kuwait has witnessed an extraordinary rise in…

Demand and Supply

There are a number of different factors that Edgar needs to take into consideration with his idea to invest in the gas station business. Let's pretend for a minute that he is not just paying the fair market value for the gas station -- he is -- and simply discuss his theory about the economics of the gas market. If the market for gas stations is even remotely efficient, the price of that gas station will be the present value of expected future cash flows, meaning that all of the knowledge about the determinants of the gas market are already priced into what Edgar is going to pay. His profit comes from the value that he can add to the station through his own management. But let us digress and get Edgar up to speed with what the market has already priced into that gas station.

There…

References

AP. (2008). Stations hope you fill up with more than gas. NBC News. Retrieved May 23, 2014 from  http://www.nbcnews.com/id/23904590/ns/business-retail/t/stations-hope-you-fill-more-gas/ 

Energy Information Administration. (2014). Gasoline and Diesel fuel update. Energy Information Administration. Retrieved May 23, 2014 from  http://www.eia.gov/petroleum/gasdiesel 

Feldman, A. (2011). The tiger in Costco's tank. Fast Company. Retrieved May 23, 2014 from  http://www.fastcompany.com/60019/tiger-costcos-tank 

Haab, T. (2008). The long run elasticity of demand for gas. Environmental Economics. Retrieved May 23, 2014 from  http://www.env-econ.net/2008/06/the-long-run-el.html

Ford Motor Company

Objective of this report is to use Ford Motor Company 2012 Second Quarter to carry out research on the company's production inventory levels, price and sales data and operational cost information.

Ford Motor Company (Ford) is one of the largest global automotive companies. The company manufactures and distributes automobile across six continents, and the company operates financing business through Ford Motor Credit Company. At the end of the 2011 fiscal year (FY2011), the company recorded total revenue of $136 billion, an increase of 5.7% over FY2010. Ford Motor also recorded the total net profit of $20 billion at the end of the 2011 fiscal years recording the increase of 4.3% over FY2010. The strength of Ford Motor lies with its strong brand that the company sells at premium price. Among its brands are Lincoln, and Ford which are among the strongest brand in the world. (Datamonitor, 2011).…

References

Datamonitor, (2011). Company Spotlight: Ford Motor Company. MarketWatch: Automotive. USA.

Ford (2012). 2012 Second Quarter Earning Review JULY 25, 2012 (Preliminary Results).

Jiambalvo, J. (2001). Managerial Accounting. Chapter 7: Capital Budgeting Decisions. John Wiley & Sons, Inc.

Mcgraw-hill (2010). Chapter 6: Elasticity, Consumer Surplus, and Producer Surplus. USA.

However the restaurants collectively are considered to be a luxury good to those within the market. We feel that our brand is a normal good in this market as our cuisine is specific to the taste of the clientele represented by the demographic. Additionally, our decor and quality distinguish our establishment from what are deemed to be the lower quality establishments in the area that would normally represent the 'competition'.

The additional features of our establishment also yield a luxury restaurant as the market deems the bathroom as an important feature in distinguishing a market friendly and luxurious restaurant experience. In many countries it is that way, the food itself does not distinguish the restaurant, as one can ostensibly obtain a great, world-class meal from many restaurants. Indeed, the restroom experience is what qualifies a restaurant as being luxurious or not luxurious.

The market structure that best characterizes the industry…

References

Cadbury Schweppes Announces Intention to Sell Europe Beverages. United States, New York: PR Newswire Association LLC, 2005. ABI/INFORM Complete. Web. 15 July 2011.

Country Forecast Switzerland September 20092009,, The Economist Intelligence Unit, United States, New York.

John Bohannon Contributor to The Christian, Science Monitor 2004, The best food I've tasted - but never seen, United States, Boston, Mass.

Micheloud & Cie (2011) Cost of living in Switzerland: beverages. Switzerland.isyours.com  http://www.isyours.com/e/guide/costoflife/groceries.beverages.html

The demand for their services underwent a period of diminishment, because of the strong emotional impact that the events had upon the population living all over the world and especially in the United States of America. Despite various negative forecasts, the airline industry got back on track soon afterwards. Not only did the demand not fall, but it underwent significant increases.

Another element which could affect the functioning of the airline industry in a negative manner is represented by the concerns for the environment. Leaving aside the issue represented by the phonic pollution, aspects such as global warning may become an important concern for the airline industry should the issue gain a high importance on the public and political agendas. So far, however, the issue did not manage to influence people's choices regarding travelling by airplane, regardless of the attempts made in this directions by various politicians. (Pickard, 2006)

How…

Bibliography

Gopwani, J. (2007, April 26). NWA, flight attendants reach deal. Retrieved May 17, 2007, from Freep.com Detroit Free Press Web site:  http://www.freep.com/apps/pbcs.dll/article?AID=/20070426/Business05/70426029/0/ENT03 

Mankiw, N.G. (2004). Principles of economics (3rd ed.). Chicago, IL: Thomson South-Western.

McCabe, R.M., PhD. (n.d.). Airline Industry Key Success Factors. The ability for airlines to succeed today is measured according to several key success factors. Retrieved May 5, 2007, from Pepperdine University Web site:  http://gbr.pepperdine.edu/064/airlines.html 

Muskin, J.B., & Sorrentino, J.A. (February 1977). Externalities in a Regulated Industry: The Aircraft Noise Problem. The American Economic Review, 67 (1), 347-350. Retrieved May 5, 2007, from JSTOR Web site: ( http://links.jstor.org/sici?sici=0002-8282 (197702)67%3A1%3C347%3AEIARIT%3E2.0.CO%3B2-4

At a lower price point, this may not have happened. However, R& seems to be a significant driver for the X6 model, since it has a premium position in the market. If it is to command premium prices -- which will be the case no matter if the price is $400 or $450 -- it needs to have premium features. Thus, it should retain its R& through 2008, since that move did not have a substantial impact on the X7's profitability. This brings us to the price of the X6. Clearly, raising the price higher during 2008 and 2009 was a poor strategy. The loss of sales, especially in 2009, was significant and even in 2008 profits decreased. Thus, a lower price point is expected to generate higher sales for this product, particularly in the later years (2008 and 2009). Thus the strategy for the next simulation will remain largely…

Discontinue? N

The results of this new strategy are expected to be roughly the same, but erasing some of those profit losses with the X6 product. If the $450 pricing was restored, that would give back approximately $54 million of profit that the price increase cost us. Restoring the R&D in 2008 and lowering the pricing to more attractive price points in 2008 and 2009 should spur greater demand. The product reached only 78% saturation, compared with the 98% saturation that was achieved during the base case scenario. At a higher price point than the base case of $400, it is unlikely that 98% can be achieved, but a figure higher than the 79% recorded in Sim II can be expected. A figure in the 85% range will result in 330,000 additional sales, which at the new 2008 and 2009 price points is in the range of a further $7.755 million in profit.

The biggest question remains at to whether or not the $137 price point is actually the optimal point for the X7. There is a risk to testing this further. Perhaps the X5 should be evaluated -- its price is set at a comfortable level but it may not be entirely optimized. For now, however, the main focus will be on spurring late life cycle demand for the X6.

Why does GE finance poorly-rated airlines with its aircraft financing? GE benefits in three ways: (1) its lower cost of capital than the airlines means that it can charge a risk premium, and make more money on the airline debt, (2) it sells aircraft engines and, more critically, spare parts, which are the biggest long-term source of revenue for the company, and (3) the loans are well-collateralized. Even in a bankruptcy procedure, the airlines have relatively little recourse to the assets, and GE would be free to sell or lease the airlines to others. Other leasing companies, while they don't have GE's aircraft engine business, are able to lure tax-advantaged investors (offshore, those receiving tax credits, others) who also give them a lower cost of capital; their expertise in leasing and selling planes, as well as their leverage in pricing negotiations with the major airframe manufacturers gives them an advantage…

Bibliography

Business Week. "Why GE Is Keeping Loser Airlines Aloft." Business Week 7 February 2005: n.p.

Francisco, Federal Reserve Bank of San. Competition and Regulation in the Airline Industry. Economic Report. San Francisco: Federal Reserve, 2002.

Gittell, JH, Cameron, K, Lim, S and Rivas, V. "Relationships, Layoffs and Organizational REsiliance." The Journal of Applied Behavioral Science (2006): 300-329.

Mackinac. Price Elasticity of Demand. Economic. Mackinac: Mackinac Center for Public Policy, 1997.

5 cents, so you lose $7,500 in contribution for every $1 you increase the price but you gain. This hints that price elasticity of demand is relatively low for this product, perhaps lower than previously believed. Increases in price will result in reduced sales figures but can be expected to bring in more profit as well. It is not expected, however, that elasticity is perfectly linear. It is worth testing the upper bound here, to see how high a price can be supported by the market.

With the X7, the most important number is the final market saturation figure of 37%. There is room for growth here. The cost of goods sold is $65. Thus, $65 is the lower bound on pricing for the X7. We just need to find the point that maximizes profit -- this may not be saturation. We knocked $50 off the price and grew the…

profit analysis was introduced, but the execution was lacking. One of the important factors is that CVP analysis requires a number of data points so that the elasticities of demand for the product can be determined. There is still going to be the wild card of R&D investment, but setting prices is an important determinant of demand. Working on theory rather than data last time, the results were perhaps less than stellar. The key, however, is to learn from the mistakes that we make and build a better company next time.

Underlying Theory

Last time out, the prevailing theory was that the X5 should be cheaper, the X6 more expensive and the X7 should be much cheaper. The X5 is going to sell out anyway, so whatever we do with that product is only going to make a few million in difference. Nevertheless, we know that the X5 has to…