Essay Long Term Investment Decisions : Price Elasticity Of Demand

Essay Long Term Investment Decisions : Price Elasticity Of Demand

Length: 1722 words (4.9 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

Long-Term Investment Decisions
Price elasticity of demand explains the responsiveness of demand for goods and services on changes in price. Pricing strategies that the managers should conform with will depend on the effect of demand for the change in prices. When price elasticity of demand is less elastic, it means that a change in price results to a small change in quantity demanded. In the case of low-calorie, frozen microwaveable food company, they want the price elasticity of their products to be inelastic (Guven & McPhail, 2013). Prior assignments revealed that low-calorie microwavable foods fall in a monopolistically competitive market. This means various buyers and sellers that deal with the same product. For this reason, a large change in price will make the demand for a product to decrease immensely.
First, it is recommended that the company invest in advertisement and product differentiation. Product differentiation will provide the company with added advantage, and the customers will remain loyal to the company. Product differentiation will make the product appear more quality, and this will determine the pricing strategies to use. Since the products will be different from those of competitor companies, then low-calorie, frozen microwaveable company can increase the prices of their food products, and the customers will remain loyal to the company as well as increase market power (Guven & McPhail, 2013).
Effects that government policy have on production and employment
Government helps in regulating the economy in ways that the private sector cannot. A regulated market ensures that business and customers are not affected by economic factors such as an increase in prices or increase in inflation rates. Government polici...


... middle of paper ...


...ase in profitability of the company. Secondly, having convergence between stockholders and managers will ensure that the business is stable financially as well as a good image to the customers and creditors. This will increase revenue and profitability of the enterprise.
In conclusion, taking up a capital investment projects requires intensive evaluation through capital budgeting techniques. Evaluation will ensure that the management of a business weighs the risk, rewards, and cost associated with the capital project. Convergence between the shareholders and managers is equally important in deciding the most viable project to take. Government regulation is necessary for a market economy to ensure that there is equality in the market. Government intervention ensures there is an equal distribution of resources throughout the market, and monopoly power is reduced.




Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on Tuition Payment Of Nobody State University

- Tuition Payment in Nobody State University Nobody State University charges their students with tuition fees in order to accommodate them with faculty and stuff keeping, laboratory system, computer as well as technical facilities, library, research and other necessary maintenance. Like worldwide educational institutions, the basic aim is to offer students with a healthy and comfortable education environment. Assessing the Raise in Tuition in NSU Due to failure in generating necessary revenue, NSU has raised its tuition fees from students....   [tags: Price elasticity of demand, Supply and demand]

Better Essays
1482 words (4.2 pages)

Essay on Long-Term Investment Decisions

- 1.) Outline a plan that managers in the low-calorie microwaveable food company could follow when selecting pricing strategies for making their products as inelastic as possible. Provide a rationale for your response. As costs to produce frozen meals rises, such as an increase in the prices of ingredients, packaging, and shipping, the company may be forced to raise its prices to cover these extra costs. One thing a manager wants to do when deciding on a pricing strategy is to minimize the change in elasticity, and keep their product inelastic....   [tags: ]

Better Essays
1865 words (5.3 pages)

The Elasticity Of Price Elasticity Essay

- Price elasticity is defined in our text as the change in relationship between a change in the quantity demanded and price. When price elasticity is greater than 1, it’s considered “somewhat elastic” so that when the price increases the revenue decreases. This is due to the quantity being changed so significantly it results in a lost in revenue. In a short period of time, this elasticity may not be detrimental but a wide market change could drive away customers and hurt the company. Cross price elasticity is a measure of changes in quantity demands....   [tags: Supply and demand, Price elasticity of demand]

Better Essays
948 words (2.7 pages)

The Price Elasticity Of Demand Essay

- 1- What is the price elasticity of demand. How is the price elasticity of demand calculated The price elasticity of demand is a term that is usually use in economic to discuss the price sensitivity. It refers to the relationship between a change in the price of a particular good and a change in its quantity demanded, in other words, the price elasticity of demand is the measure of variable reaction to change in another variable. The supply or the demand of a good or service changes with the price or the consumer’s income....   [tags: Supply and demand, Price elasticity of demand]

Better Essays
721 words (2.1 pages)

Price Elasticity Of Demand Measured Essay

- McGuigan, Moyer & Harris (2014) price elasticity of demand measured by the changes that affect at least one-factor price, advertising, promotion, packaging or income levels (p.64). However, my supervisor needs the elasticities for each independent variable using the regression equation above and adding values, P= 500, PX= 600, I= $5,500, A= $10,000, M=5,000. Adding the P, PX, I, A, and M value to the regression table: QD= - 5,200 – 42(500) + 20(600) + 5.2(5,500) + 0.20(10,000) + 0.25(5,000) = 17,650....   [tags: Supply and demand, Price elasticity of demand]

Better Essays
1188 words (3.4 pages)

The Concept Of Price Elasticity Of Demand Essay example

- The concept of Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded by consumers to a change in product price. It is used by businesses to forecast sales, set the most effective price of goods and determine total revenue (TR) and total expenditure (TE). Similarly, governments also use price elasticity of demand when imposing indirect taxes on goods and setting minimum and maximum prices. Marginal revenue is also determined by the price elasticity of demand. Price elasticity of demand is used to predict the quantity shift in the supply curves and the effect on price for a product, and is usually always negative as it is the relationship between price and quantity...   [tags: Supply and demand, Price elasticity of demand]

Better Essays
1828 words (5.2 pages)

The Price Elasticity Of Demand Ratio Of The Percentage Change Essay

- However, my supervisor needs the elasticities for each independent variable using the regression equation above by adding the P, PX, I, A, and M value to the regression table. Ep=(P/Q) (-42) Ep= (-42) (500/17650) Ep= (-42) *0.0283= -1.189 or -1.19 Epx =20*(600/17,650) Epx= 20*(0.0339) Epx=0.68 Ei= 5.2(5500/17,650) Ei= 5.2(3.116) Ei= 1.62 Ea= 0.20(10000/17,650) Ea= 0.20(0.566) Ea= 0.1133 Em= 0.25(5000/17650) Em= 0.25(0.283) Em=0.07 McGuigan, Moyer & Harris (2014) describes the price elasticity of demand ratio of the percentage change in quantity demanded to the percentage change in price if all other factors of demand continue to be untouched (p.72)....   [tags: Supply and demand, Price elasticity of demand]

Better Essays
847 words (2.4 pages)

Price Elasticity Of Demand And Demand Essay

- 1. What is the price elasticity of demand. How is the price elasticity of demand calculated. The price elasticity of demand as I understand it is how much demand for an item will change with a given change in the price of an item. To be more precise it is the percent change in demand per unit of time divided by the percent change in price. (Khan, "Price elasticity of demand") While most examples I could find of price elasticity of demand were linear, I do not think they would truly be that way in real life....   [tags: Supply and demand, Elasticity]

Better Essays
1291 words (3.7 pages)

The Elasticity Of The Price Essay

- a. At $40, Q = 840 - 0.50(40) = 820. The quantity demanded is 820 when the price is $40. At $38, Q = 840 – 0.50(38) = 821.The quantity demanded is 821 when the price is $38. According to the market demand equation, a $2 decrease in price would cause the quantity of jeans sold to increase by 1. Therefore, consumer expenditure rises with the decrease in price. b. Elasticity = % Δ Quantity ÷ % Δ Price = (820-821)*100 ÷ (40-38)*100 = -100 ÷ 200 = -0.5. The elasticity, in absolute terms, is 0.5 making it a relative inelasticity of demand....   [tags: Supply and demand, Elasticity]

Better Essays
1300 words (3.7 pages)

Economics Elasticity Essay

- Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good idea of what part of a demand curve looks like if it is to make good decisions. If Rick's Pizza raises its prices by ten percent, what will happen to its revenues. The answer depends on how consumers will respond. Will they cut back purchases a little or a lot. This question of how responsive consumers are to price changes involves the economic concept of elasticity....   [tags: Price Elasticity of Demand]

Better Essays
926 words (2.6 pages)