long term investments
1 Elasticity of Demand
The demand of any product depends on the pricing strategy being followed by the company as well as other factors like nature of product i.e. necessity or luxury, availability of substitutes, switching cost etc. If the product is a necessity usually it has an inelastic demand. Inelastic demand refers to the situation where one unit increase or decrease in the product’s price cause less than one dollar change in the units demanded of that product (Kreps, D. M. 1990). If product is luxurious, its demand is usually elastic in nature. Elastic demand means one unit change in the price of a product causes more than one unit change in its quantity demanded. E.g. the automobiles and mobiles have elastic demand while salt and sugar have inelastic demand. The product under consideration is low calorie microwavable food an item whose price elasticity was provided in previous assignment was:
Own price elasticity (ep) = × = -10, P = 8000, Q = 131000
Own Price elasticity (ep) = - 10 × = - 0.61 (approx.)
As unit 1 change in price cause less than unit 1 change in quantity demanded of low calorie microwavable food, thus their demand is inelastic in nature. Changes in prices do not cause huge change in the quantity demanded. Though currently its demand is inelastic in nature but one of the most important factors that need to be considered here is availability of substitutes. As from the last assignment we came to know that large number of sellers of low calorie microwavable food items exist in the industry offering some differentiated features. This shows that substitutes can easily be available and company lies in monopolistic competition industry. In monopolistic competition there exist a large number of suppliers each offering some differentiated feature in their product and thus can change the price to some extent. Companies have market power in this industry and can expand and set the pricing policy that can maximize its revenue and make
The demand of any product depends on the pricing strategy being followed by the company as well as other factors like nature of product i.e. necessity or luxury, availability of substitutes, switching cost etc. If the product is a necessity usually it has an inelastic demand. Inelastic demand refers to the situation where one unit increase or decrease in the product’s price cause less than one dollar change in the units demanded of that product (Kreps, D. M. 1990). If product is luxurious, its demand is usually elastic in nature. Elastic demand means one unit change in the price of a product causes more than one unit change in its quantity demanded. E.g. the automobiles and mobiles have elastic demand while salt and sugar have inelastic demand. The product under consideration is low calorie microwavable food an item whose price elasticity was provided in previous assignment was:
Own price elasticity (ep) = × = -10, P = 8000, Q = 131000
Own Price elasticity (ep) = - 10 × = - 0.61 (approx.)
As unit 1 change in price cause less than unit 1 change in quantity demanded of low calorie microwavable food, thus their demand is inelastic in nature. Changes in prices do not cause huge change in the quantity demanded. Though currently its demand is inelastic in nature but one of the most important factors that need to be considered here is availability of substitutes. As from the last assignment we came to know that large number of sellers of low calorie microwavable food items exist in the industry offering some differentiated features. This shows that substitutes can easily be available and company lies in monopolistic competition industry. In monopolistic competition there exist a large number of suppliers each offering some differentiated feature in their product and thus can change the price to some extent. Companies have market power in this industry and can expand and set the pricing policy that can maximize its revenue and make
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