What factors must a firm consider when deciding to raise or lower its price

What factors must a firm consider when deciding to raise or lower its price? In answering this question think about the content in Chapters 4 and 5 and use a real-world example that helps illustrate your answer.

The Discussion Board Forum should be considered as weekly short essay. In order to receive full credit, answer every question according to the instructions and the discussion Writing Grading Rubric.  Please always use the Critical Elements as checklist to ensure you have fully addressed the requirements of the DB Assignment. You need to read the textbook and understand the concepts before you answer the questions. It is mandatory that you use proper managerial economic language or concepts such as “isocost”, “isoquant”, “elasticity”, “net present value”, “time value of money”, etc. on your posting.  Additional research is required and strongly encouraged. Make sure to cite the sources of your research at the end of your posting. You may add graphs or charts when applicable.

Hello Class:

Please review the following for Examples/Illustrations that clarify Course Material:

Companies can use the price elasticity of demand for products and services to set pricing policies. Price elasticity indicates the sensitivity of customers to changes in pricing, which in turn affects sales volumes, revenues and profits. Optimal pricing policies maximize profits by charging exactly what the market will bear. Managers may adjust their pricing strategies depending on changes in the competitive environment and in consumer demand.

Demand Curve

The demand curve is a two-dimensional graph of price on the vertical y-axis versus quantity on the horizontal x-axis. This curve slopes down because demand generally increases as prices fall. A vertical demand curve means that demand is the same regardless of price, while a horizontal demand curve means that price is constant regardless of demand. The shape and slope of the curve depend on the product, consumer income and the competitive environment.

Price Elasticity

The price elasticity is the ratio of the percentage change in quantity to the percentage change in price. For example, if quantity decreases by 20 percent for a 25 percent increase in price, the price elasticity is -20 divided by 25, or -0.8. The price elasticity is always negative because of the downward slope of the typical demand curve. However, people generally refer to the absolute value of the price elasticity, which is 0.8 for this example. A price elasticity of less than 1.0 means that demand is not very sensitive to price, while an elasticity greater than 1.0 mean that demand is increasingly sensitive to price. The price elasticity is low for essential goods because people have to buy them even at higher prices. The price elasticity is high for non-essential and luxury goods because consumers may not buy them at higher prices.

Optimal Pricing Policy

Optimal pricing policy is also known as perfect price discrimination, which means that a company segments the market into distinct customer groups and charges each group exactly what it is willing to pay. The optimal price and volume refer to the selling price and volume at which a company maximizes its profits. It is impossible for a small-business owner to know exactly what consumers are willing to pay because he would have to poll them at regular intervals. Still, he can make reasonable assumptions based on historical sales patterns and set his product mix and pricing strategy accordingly.

Significance

Optimal pricing is possible only when there is a difference in price elasticity for different consumer groups. For example, a grocery store chain may price the same item higher in a wealthy neighborhood, in which consumers may be less sensitive to price, and lower in a working-class neighborhood, in which consumers may be more sensitive to prices. The factors that affect price elasticity include the availability of substitute products and the proportion of disposable income required to buy certain product. The price elasticity will be high if consumers can buy alternative products or if they have to pay too much of their income.

Read more at: http://smallbusiness.chron.com/price-elasticity-optimal-pricing-policy-36020.html

Are you looking for a similar paper or any other quality academic essay? Then look no further. Our research paper writing service is what you require. Our team of experienced writers is on standby to deliver to you an original paper as per your specified instructions with zero plagiarism guaranteed. This is the perfect way you can prepare your own unique academic paper and score the grades you deserve.

Use the order calculator below and get ordering with idealtermpapers.com now! Contact our live support team for any assistance or inquiry.

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:
 Total:

Purchase Guarantee

Why ORDER at IdealTermPapers.com?

  • Educated and experienced writers.
  • Quality, Professionalism and experience.
  • Original Content writing.
  • Best customer support.
  • Affordable Pricing on orders.
  • Thorough research.
  • Ontime delivery of finished work.
  • 100% plagiarism free papers.

Reasonable Prices

  • To get the best quality papers isn’t cheap so don’t trust extremely low prices.
  • We can’t claim that we have unreasonably low prices because low prices equal to low quality.
  • Our prices are good and they balance with the quality of our work.
  • We have a Moneyback guarantee.

Original and Quality work

  • Our writers are professionals and they write your paper from scratch and we don’t encourage copy pasting.
  • All writers are assessed and they have to pass our standards for them to work with us.
  • Plagiarism is an offence and it’s never tolerated in our company.

Native Writers plus Researchers

  • Our writers are qualified and excellent and will guarantee the best performance in your order.
  • Our team has writers who have master's and PhD qualifications who can handle any assignment
  • We have the best standards in essay writing.

We have been in business for over 7 syears

  • We have always served our customers from all over the world and they have continued to order with us.
  • We value our customers since they have trusted us to do their assignments.
  • We are competent in our writing gained from experience over the years
  • Our company has 24/7 Live Support.

You will get

  •  Custom Admission Essay written by competent professional English writers.
  •  Free revisions according to our revision policy if required
  •  Paper format:  275 words per page, Times New Roman font and size 12, doublespaced text and1 inch margin
  •  On time delivery and direct order download
  •  Privacy guaranteed

We can help you:

  •  acquire a comprehensive professional presentation.
  •  get a unique and remarkable content as per your instructions.
  •  Get an additional portion that can be included to your existing presentation;
  •  turn your work in to an eyecatching presentation with well communicated ideas.
  •  improve your presentation to acquire the best professional standards.