Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Demand Price $300 $240 Demand 0 250 400 Quantity 1 Calculate the Elasticity of Demand 1. For the price movement from $300 to $240 a. Elasticity is 2.0 b. This means that a 1% decrease in price will cause a 2.0% increase in quantity demanded (i.e., sales quantity) c. Numbers larger than 1 represent a relatively responsive change to price 2 Determinants of Elasticities 1. Elasticities vary along demand curve a. More elastic at high prices Consumers respond a lot b. Less elastic (more inelastic) at lower prices Consumers care less 2. Elasticity is determined by the quality and quantity of available substitutes 3 Elasticities and Total Revenue 1. Price and Total Revenue move in opposite directions on the elastic portion of the demand curve 2. Elastic example (2.0) a. At the high price of $300 Total revenue = $75,000 $300 x 250 b. At the low price of $240 Total revenue = $96,000 $240 X 400 4 Price/Value Tradeoffs 1. Consider the impact of Price on PROFIT rather than just on Total Revenue 2. Assume each unit costs a seller $200 to purchase a. And that the elasticity of demand is relatively elastic That is, consumers can find the 5 same product elsewhere Price/Value Tradeoffs 3. At the high price of $300 (250 units), total revenue = $75,000 a. Profit = $75,000 – ($200*250) = $25,000 4. At the lower price of $240 (400 units), total revenue = $96,000 a. Profit = $96,000 – ($200*400) = $16,000 5. Profit is 36% lower even though revenue increased a. You not only lowered price on the extra 150 units, you also lowered the price on those you would have6 sold at $300 Price/Quantity Tradeoffs Comparison of Price to Quantity 320 280 260 240 220 500 475 450 425 400 375 350 325 300 275 200 250 Price Per Unit 300 Quantity 7 Price/Revenue Tradeoffs Comparison of Price to Total Revenue 105,000 95,000 90,000 85,000 80,000 75,000 70,000 65,000 200 210 220 230 240 250 260 270 280 290 60,000 300 Total Revene 100,000 Price Per Unit 8 Price/Profit Tradeoffs Comparison of Price to Profit 30,000 25,000 15,000 10,000 5,000 200 210 220 230 240 250 260 270 280 290 0 300 Profit 20,000 Price Per Unit 9 Price/Quantity Tradeoffs Sale Quantities Needed To Maintain $25,000 of Profit 900 800 600 500 400 300 200 100 230 240 250 260 270 280 290 0 300 Quantity Sold 700 Price Per Unit 10