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link.docxPrice Elasticity
1. Discuss what actions the company should take to set the Standard box price given its price elasticity of demand.
Price elasticity of demands shows that the proportion change in quantity demanded affects the change in the prices of the commodities. The price elasticity of demand for normal goods is expected to be negative due to the laws of demand. As the price of a commodity increase, the product's demand reduces. A product is said to be elastic because demand's price elasticity has a higher value than one (Rubio-Herrero, J., & Baykal-Gürsoy, 2020). In this case, the standard boxes had a price elasticity of -2.25 when the prices were increased from $18.0 to $18.4. However, when the prices dropped to $17.6 from $18.4, the elasticity of demand increased to -2.42. The information below will look into some of the actions that can be taken to set the standard box price.
The first step in ensuring that the organization has set up the correct price for the product is by assessing the nature of the standard boxes. If the product is said to have close substitutes, setting the prices will be in terms of the market forces of demand and supply as there will be many suppliers in the industry. Moreover, the management will have to look into the percentage of income spent on the product. The standard box seems to have a higher proportion of income spent on the product as the product is price elastic. In the long run, the management must ensure that it can meet the costs and increase profits (Atkin et al., 2020). In this case, the standard boxes seem to reduce profits when the prices are increased. When the prices are set to $18.4, the profits reduce. They retain the same profitability levels when they are set to $17.6. But when the prices are set to an average of $18.0, the organization is more efficient as it makes more revenues than the expenditure.
2. Discuss what actions the company should take to set the Deluxe box price given its price elasticity of demand.
Price elasticity of demands shows that the proportion change in quantity demanded affects the change in the prices of the commodities. The price elasticity of demand for normal goods is expected to be negative due to the laws of demand. As the price of a commodity increase, the product's demand reduces. A product is said to be elastic because demand's price elasticity has a higher value than one (Rubio-Herrero, J., & Baykal-Gürsoy, 2020). In this case, the deluxe boxes had a price elasticity of -3.93 when the prices were increased from $28.0 to $29. However, when the prices dropped to $27.0 from $29.0, the elasticity of demand dropped to -3.22. The information below will look into some of the actions that can be taken to set the standard box price.
The first step in ensuring that the organization has set up the correct price for the product is by assessing the nature of the deluxe boxes. If the product is said to have close substitutes, setting the prices will be in terms of the market forces of demand and supply as there will be many suppliers in the industry (Atkin et al., 2020). Moreover, the management will have to look into the percentage of income spent on the product. The deluxe box seems to have a higher proportion of income spent on the product as the product is price elastic. In the long run, the management must ensure that it can meet the costs and increase profits. In this case, the deluxe boxes seem to reduce profits when the prices are increased. The profits were highest when deluxe boxes sold for the lowest price, which is $27.00, and profits were lower when the organization sold the deluxe boxes at $29.00. The profit generated from selling deluxe boxes at $28.00 resulted in an average profit of $27.80 million. This analysis is essential as the management would consider selling the deluxe boxes at the lowest price to increase profitability.
3. Assuming the price elasticity of supply for the Standard box is inelastic, explain the key factors that the company must consider in expanding production.
When a product's price elasticity is inelastic, the percentage change in quantity demanded over the percentage change in price is less than one. In this case, the change in prices will have little or no effect on the quantity demanded. Organizations must analyze several elements when considering the expanding production of the product. The standard box may have an inelastic elasticity of demand when the product has little or no substitutes (Wang, Chou & Liang, 2020). In such a case, increasing the price will increase profits. The management will also look into the income spent on the standard boxes. If the proportion of income spent on the standard boxes is low, then the product can be inelastic if the prices increase or reduce. Another element to be looked into is the classification of the standard box. If the standard box is a necessity, it will be inelastic.
Price inelastic products are good for business as the quantity demanded does not significantly affect the quantity demanded. In such a case, the organization should maximize the economies of scale and push for increased prices to increase revenues and reduce costs (Tovar-García & Carrasco, 2019). In the long run, the profits will be maximized.
Price Elasticity
1. Discuss what actions the company should take to set the Standard box price given its price elasticity of demand.
Price elasticity of demands shows that the proportion change in quantity demanded affects the change in the prices of the commodities. As the price of a commodity increase, the product's demand reduces. A product is said to be elastic because demand's price elasticity has a higher value than one (Rubio-Herrero, J., & Baykal-Gürsoy, 2020). In this case, the standard boxes had a price elasticity of 2.33 when the prices were increased from $18.0 to $18.4. However, when the prices dropped to $17.6 from $18.4, the elasticity of demand increased to 2.25. The information below will look into some of the actions that can be taken to set the standard box price.
The first step in ensuring that the organization has set up the correct price for the product is by assessing the nature of the standard boxes. If the product is said to have close substitutes, setting the prices will be in terms of the market forces of demand and supply as there will be many suppliers in the industry. Moreover, the management will have to look into the percentage of income spent on the product. The standard box seems to have a higher proportion of income spent on the product as the product is price elastic. In the long run, the management must ensure that it can meet the costs and increase profits (Atkin et al., 2020). In this case, the standard boxes seem to reduce profits when the prices are increased. When the prices are set to $18.4, the profits reduce. They retain the same profitability levels when they are set to $17.6. But when the prices are set to an average of $18.0, the organization is more efficient as it makes more revenues than the expenditure.
1. Discuss what actions the company should take to set the Deluxe box price given its price elasticity of demand.
Price elasticity of demands shows that the proportion change in quantity demanded affects the change in the prices of the commodities. As the price of a commodity increase, the product's demand reduces. A product is said to be elastic because demand's price elasticity has a higher value than one (Rubio-Herrero, J., & Baykal-Gürsoy, 2020). In this case, the deluxe boxes had a price elasticity of 3.93 when the prices were increased from $28.0 to $29. However, when the prices dropped to $27.0 from $29.0, the elasticity of demand dropped to 2.80. The information below will look into some of the actions that can be taken to set the standard box price.
The first step in ensuring that the organization has set up the correct price for the product is by assessing the nature of the deluxe boxes. If the product is said to have close substitutes, setting the prices will be in terms of the market forces of demand and supply as there will be many suppliers in the industry (Atkin et al., 2020). Moreover, the management will have to look into the percentage of income spent on the product. The deluxe box seems to have a higher proportion of income spent on the product as the product is price elastic. In the long run, the management must ensure that it can meet the costs and increase profits. In this case, the deluxe boxes seem to reduce profits when the prices are increased. The profits were highest when deluxe boxes sold for the lowest price, which is $27.00, and profits were lower when the organization sold the deluxe boxes at $29.00. The profit generated from selling deluxe boxes at $28.00 resulted in an average profit of $27.80 million. This analysis is essential as the management would consider selling the deluxe boxes at the lowest price to increase profitability.
1. Assuming the price elasticity of supply for the Standard box is inelastic, explain the key factors that the company must consider in expanding production.
When a product's price elasticity is inelastic, the percentage change in quantity demanded over the percentage change in price is less than one. In this case, the change in prices will have little or no effect on the quantity demanded. Organizations must analyze several elements when considering the expanding production of the product. The standard box may have an inelastic elasticity of demand when the product has little or no substitutes (Wang, Chou & Liang, 2020). In such a case, increasing the price will increase profits. The management will also look into the income spent on the standard boxes. If the proportion of income spent on the standard boxes is low, then the product can be inelastic if the prices increase or reduce. Another element to be looked into is the classification of the standard box. If the standard box is a necessity, it will be inelastic.
Price inelastic products are good for business as the quantity demanded does not significantly affect the quantity demanded. In such a case, the organization should maximize the economies of scale and push for increased prices to increase revenues and reduce costs (Tovar-García & Carrasco, 2019). In the long run, the profits will be maximized.
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