MANECO F4 – ipapasa na lang

Week No. 4 Demand Analysis and Optimal Pricing

How do we apply price elasticity as an economic tool in business decision-making inside
our company. Justify your answer and provide concrete examples.
https://www.businesstopia.net/economics/micro/uses-price-elasticity-demand-business-decision-
making

Price elasticity of demand can be a helpful tool for business people when making critical choices
such as determining the price of goods and services. When the government sets prices, the
concept of elasticity of demand plays a critical part in pricing choices made by business firms
and the government. The concept of elasticity is also essential in determining the impact of a
currency's depreciation on its export profits.

When making price selections for their products, business firms consider the elasticity of
demand. This is due to the fact that a change in the price of a product will result in a change in
the amount demanded, based on the coefficient of elasticity. This change in quantity demanded
as a result of, example, a price increase by a business would influence overall consumer
expenditure and, hence, the firm's profitability. If a firm's demand for a product is elastic, every
attempt on the firm's side to raise the price of its product will result in a decrease in overall
income. As a result, instead of benefiting from a price rise, it will suffer if demand for a product
is elastic. If, on the other hand, the firm's product's demand is inelastic, then raising the price will
increase its overall income. Therefore, in order to set a profit-maximizing price, the firm must
consider the elasticity of demand for its product. Some empirical research has discovered that
business enterprises frequently neglect to consider elasticity when making pricing decisions, or
they pay insufficient attention to the coefficient of elasticity.