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Mathematics & Economics
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Topic:
Economics: The Company's Goal, Case of Elastic Demand
Coursework Instructions:
Elasticity is related to a firm's total revenue and changes as you move up and down the demand curve. Suppose you are a marketing manager charged with deciding whether to increase the price of goods. The company's goal in considering that decision is to increase total revenue. If you were facing elastic demand, would a price increase be a good way to increase total revenue? If you were facing inelastic demand, would a price increase be a good way to increase total revenue? Since elasticity changes as you move up and down the demand curve, how can the marketing manager know whether demand for a product is elastic or inelastic?
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Economics
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Elasticity is related to a firm's total revenue and changes as you move up and down the demand curve. Suppose you are a marketing manager charged with deciding whether to increase the price of goods. The company's goal in considering that decision is to increase total revenue. If you were facing elastic demand, would a price increase be a good way to increase total revenue? If you were facing inelastic demand, would a price increase be a good way to increase total revenue? Since elasticity changes as you move up and down the demand curve, how can the marketing manager know whether demand for a product is elastic or inelastic?
The concept of elasticity of demand is associated with the responsiveness of changes in demand to prices. Elastic demand (>1) is related with a larger change in quantity demand when the price changes as consumers are sensitive to price changes (Mankiw, 2014). The total revenue depends on the price and quantity demanded. This contrasts with inelastic demand (<1) where the change in the quantity of goods demand is small when the prices changes as consumers are insensitive to price changes (Mankiw, 2014).
In the case of elastic demand, lowering the price will result in higher revenue, since the demand of goods in...
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