Read initial posts to the following question/ questions and respond:
1. Price elasticity of demand is an important tool for managers in in a selling environment in deciding what to put on sale. Explain how a profit-maximizing manager should decide what goods to put on sale based on the relationship between total revenue and price elasticity of demand. Provide appropriate examples as needed.
2. With appropriate examples explain how marginal cost is related only to total variable cost.
Initial post Maria-
A manager should analyze the price elasticity for those products and that way decide what change/s are best for the company. A product that is said to be inelastic will increase the business’s total revenue, an example of an inelastic product would be water, if the manager decides to increase its price, the total demand will decrease but not enough to prevent the sales, since water is a product that can’t be replaced, this will result in the increase on total revenue. Another thing a manager can do is decrease the price of those products that are elastic which will increase the demand level again helping increase their profit. Having more products that are inelastic will give the manager more flexibility in changing those products’ prices, and potentially maximizing total revenue, these products are also less likely to be affected by an economic downturn. Another advantage of inelastic products is that other company costs, such as a price increase in production, can be passed on to customers in order to cover such costs. (Beers, 20222)
An example of how marginal cost is related to total variable cost is if a company normally produces 10 desks/week, and their demand changes to 15 desks/week, the change in price for the change in production affects the marginal cost if it costs $800 to produce 10 desks and $900 to make 15 desks. Its marginal cost will be $20 for the additional units. If there was no change in the number of units the marginal cost will stay the same week by week if the number of desks varies this will then affect the total variable cost. Since fixed costs remain constant it doesn’t make a change as a variable cost. (Green, 2022).
Resource
Beers, B. (2022, February 8). What is the effect of price inelasticity on demand? Investopedia. Retrieved from https://www.investopedia.com/ask/answers/012915/what-effect-price-inelasticity-demand.asp
Green, L. (2022, June 7). Are marginal costs fixed or variable costs? Investopedia. Retrieved from https://www.investopedia.com/ask/answers/013015/are-marginal-costs-fixed-or-variable-costs.asp
Initial post Richard-
Class,
When it comes to figuring out what products should be put on sale for a given firm in regards to price elasticity of demand while focusing on total revenue the approach should be to focus on products that have an elastic price of demand. For products that have an elastic price of demand, the quantity demanded will increase by a certain percentage when the price decreases. With an increase in demand, this assists a manager to reaching the goal of maximizing profits and generating greater revenue.
For marginal cost, this is the cost associated with producing additional units for a specific product or service. The total variable cost is the multiplication of the cost to develop one unit of a product by the number of units developed. If the total variable cost is positively sloping then the marginal cost will be positive and rising. The law of diminishing marginal returns determines the shape of total variable cost and marginal cost.
