# FIN 30210: Managerial Economics Consumer Dem in addition to Analysis Heres where we st in addition to Consumer Preferences Could I increase revenues by altering my price

## FIN 30210: Managerial Economics Consumer Dem in addition to Analysis Heres where we st in addition to Consumer Preferences Could I increase revenues by altering my price

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Price ElasticityWith low elasticity goods, large price changes are associated with small quantity changesWith high elasticity goods, small price changes are associated with large quantity changesExamples: Textbooks, Cigarettes, Gasoline Examples: Kit Kat Chocolate Bar, Porsche 911, Sunoco GasCross Price ElasticityCross price elasticity will be a negative number as long as complimentsCross price elasticity will be a positive number as long as substitutesIncome ElasticityIncome elasticity will be a positive number as long as normal goodsSuppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$250200\$50,000Could I increase revenues by altering my priceYou dont know the dem in addition to curve you face, but you know the elasticity

Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.Lets begin with an expression as long as total revenuesI can rewrite this in percentage change termsNow, substitute in elasticityA little rearranging\$250200\$50,000Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.Plugging in my known elasticityThis tells me that if I lower my price by 10%, my revenues will go up by 40%\$250-10%\$22530010(-5)=50%So, why didnt I get 40%\$250200\$50,000200\$67,500Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$250\$225300200\$150\$100600800As price falls, dem in addition to generally becomes more inelastic\$150600\$90,000When the elasticity is equal to minus one, the percentage change in revenues is zero a maximum!

Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$150600\$90,000Suppose that a recession causes a 20% drop in income. How much would we have to lower our price if we wanted to keep sales constantStart with overall percentage change in quantity is affected by price changes in addition to income changesWe want the quantity change to be zeroPlug in what we know in addition to solveSuppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.Suppose that a recession causes a 20% drop in income. How much would we have to lower our price if we wanted to keep sales constant\$150600\$140\$84,000Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$250Now, suppose that you actually have the dem in addition to curve200\$50,000Median Income in thous in addition to sSuppose that median income is \$40,000We can calculate the elasticity at any point

Suppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$140600\$84,000Suppose that a recession causes a 20% drop in income. How much would we have to lower our price if we wanted to keep sales constantIncome was originally \$40k, a 20% drop would be \$32kSimplify in addition to set quantity equal to 600Solve as long as priceSuppose that you work as long as Delta in addition to that you are setting the price as long as the shuttle from JFK to Boston.\$145580\$84,100Suppose that a recession causes a 20% drop in income. How much would we have to lower our price if we wanted to maximize revenuesDem in addition to with income equal to \$32kTake the derivative in addition to set is equal to zeroSolve as long as priceDem in addition to Curves vs. Elasticities\$250200If I do not know the dem in addition to curve, I need two points to calculate an elasticity\$225240One minor problem

Dem in addition to Curves vs. Elasticities\$250200I get a different answer if I change the direction that I am moving.\$225240We can fix this Dem in addition to Curves vs. Elasticities\$250200Arc Elasticity calculates the percentage changes by taking the change divided by the midpoint\$225240Midpointp = \$237.50Q = 220Dem in addition to Curves vs. ElasticitiesIf I have the dem in addition to curve, I can calculate the point elasticities analyticallySuppose that my dem in addition to curve is not linear Income ElasticityPrice ElasticityDerivative of dem in addition to with respect to priceDerivative of dem in addition to with respect to income

Dem in addition to Curves vs. ElasticitiesNow about this one Dem in addition to Curves vs. ElasticitiesThere is an easier way to do this Take the natural log of both sidesA little mathematical trick This just says that the difference in logs is a percentage changeDem in addition to Curves vs. ElasticitiesHeres another one Take the natural log of both sidesLog linear dem in addition to curves have constant elasticities!

\$400\$200400(Actual)(Estimated)If you do a linear estimation, what you end up with something like this not really what we wantMy estimated dem in addition to curve will end up being an average of the two customer typesHowever, all is not lost we could use a dummy variable\$200\$400400RecreationalBusinessYES! We can do this!Business Travelers\$150\$150150450\$67,500\$22,500\$600\$200Heres two different customers. different intercepts AND different slopesTotal Profits = \$90,000Recreational Travelers

Example: Beer PricingWith all the different packaging configurations, Budweiser has a pricing problem similar to that of HP12 oz. can12 oz. bottleKegA consumer choice analysis would be neededConsumer TypesIncomeEducationAge Gender CanBottleSingle6 Pack12 Pack24 PackKegAttributesPrice

## Goodykoontz, Bill Movie Critic

Goodykoontz, Bill is from United States and they belong to Arizona Republic and they are from  Phoenix, United States got related to this Particular Journal. and Goodykoontz, Bill deal with the subjects like Motion Pictures; Television Industry

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