Price Elasticity of Demand and Revenue

Select a company which allows access to economic data on prices and revenue from sales. Try to gather data for at least 5 periods (days, moths, quarters, or years) and fill out the chart. If data for your chosen company is not accessible, fill out the chart below using hypothetical data: Background Information: The Price column should contain different prices the company has charged in the chosen time period, preferably in an increasing order. Not all prices should be the same. Quantity Sold represents the market demand for the company’s product/service, thus the relationship between P and Q obeys the law of demand. This means that as P increases, the Quantity Sold will decrease and vice-versa, all else equal. This opposite relationship needs to be reflected in the corresponding columns for Price and Quantity Sold. In the same time, for any given Price, the company must be willing and able to offer the product/service at that Price. This means that the Quantity Sold also represents the quantity supplied by the company. In summary, the Quantity Sold represents the equilibrium quantity the company faces for any given Price. Recall that: Revenue from Sales (Sales) = Price * Quantity Sold (P*Q) Based on the data in your table and your understanding of the relationship between the price elasticity of demand and revenue, you need to discuss and conclude your company’s price strategy in the current and/or next period. For this you MUST first calculate the price elasticity of demand for at least 4 different prices and their corresponding quantities. THIS IS VERY IMPORTANT, and you cannot continue your analysis without carrying these calculations first!!! Answer the following two questions: 1) What is your proposed price strategy for the upcoming period, which could be the coming month, season or next year, depending on what periods you chose. Be specific whether the price your company will charge should increase, decrease, or stay the same? Your answer should be based exclusively on the concept of price elasticity of demand, your calculations of the price elasticity of demand from your table above, and how total revenue from sales is affected by your proposed price strategy. (15 points) 2) What other economic or business arguments, besides the price elasticity of demand figures, may provide additional support for your proposed price strategy? (10 points) Hint 1: To answer the above questions, you might find it helpful (but you do not have to) to imagine that you are one of the managers in your company, and in the next business meeting you will be discussing with other managers and the company’s CEO what should be the price strategy for the Summer, Fall and Winter seasons this year. Your price strategies for each season could be one of the following: (1) increase the price of the main product your company produces; (2) decrease it, or (3) keep it unchanged. Make sure to use the information about the price elasticity of demand that you calculated in your table! Hint 2: Hypothetically, suppose that in your company’s last year report you found these calculations about the price elasticity of demand: -1.4 from January to Feb; -1.0 from March to May; -0.8 from June to Aug; and -1.7 from Sept to Dec. You need to change these numbers to best fit what usually happens to the demand for a given product your company offers in those four seasons, and/or your own calculations from the table above. These numbers were provided to guide you on what are some realistic and meaningful price elasticity numbers – they need to be negative (due to the law of demand, and can be greater than 1, less than 1, or 1). To receive full credit for this discussion, you need to post (1) your answer of at least 150 worefrds to the two questions above.