ECON Assignment Example | Topics and Well Written Essays - 1000 words - 1

ECON - Assignment Example Income-elasticity is found to be 1.62. This means that a one percent increase in the average income of its customers will increase the amount of goods demanded by 1.62%. In this consideration, the product is elastic and therefore the firm can make arrangement to raise its price when income rises. Advertisement elasticity on the other hand, is 0.11 which implies that a 1% rise in expenses used for advertising will lead to a rise in the amount of goods demanded by just 0.11%. The demand of the product is therefore inelastic to advertising. Due this reason, more advertisement doesn’t necessarily mean that the company can raise the price since this will derive would drive customers away. With respect to microwave ovens in the area, elasticity is calculated to be 0.07 and this means that an increase of one percent of ovens in the area will increase quantity demanded by 0.07%. The revelation indicates that the demand for the product is inelasticity and negligible in pricing strategy of the company. From the above analysis, the amount of the products demanded shows a lot of responsiveness towards price and income of the clients. The demand is however moderately responsive to price of competing goods with advertising and microwaves existing in the area recording the lowest response indicators to demand Since the price elasticity is negative a reduction or cut in price would raise the quantity demanded. The firm will attain maximum revenues at the point where the degree of elasticity is one. Holding that argument, a cut in price will raise the quantity demanded and thus increased net gain in sales as elasticity moves towards unity. In my opinion therefore the firm should reduce the price as this would result in an increased revenue generated and market share. The market for this company is therefore at equilibrium at the point where price is 384.48