Report on Price Elasticity and Recommendations for Maximising Profit

ECONOMICS
REPORT
STUDENT ID:
[Pick the date]

Purpose
The key purpose of this report is to provide recommendation with regards to decision related
to changes in price of the product with the objective of maximising profit. These decisions
are pivotal for a business considering that the changes in the price of a given product tend to
impact the sales quantity of the underlying product. As a result, the revenue would be
contingent on the pricing of the product. Also, the quantity demanded for a given product
may be impacted by the corresponding price changes in products that are complementary or
substitutes.
Method
In order to achieve the above purpose and highlight prudent recommendations, the concept of
price elasticity has been used. This concept highlights the rate of percentage change in
quantity demanded by a unit percentage change in the underlying variable. The price
elasticity of demand highlights the percentage change in the quantity demanded when there is
a unit percentage change in the price (Arnold, 2017). The underlying impact on the revenue
would be contingent on the nature of demand which may be elastic and inelastic. Also, the
various factors that influence the price elasticity of demand have also been discussed to
enhance overall understanding. Additionally, cross price elasticity concept has been used to
highlight the nature of relationship between products.
Results
Question 1
In order to enhance total revenue, price ought to be decreased. This can be illustrated through
the use of following graph.
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Question 2
In order to enhance total revenue, price ought to be increased. This can be illustrated through
the use of following graph.
Question 3
The total revenue would not alter irrespective of the change in prices and hence the revenues
are already maximised at current prices. This can be illustrated through the use of following
graph.
Question 4
The various factors that influence the price elasticity of demand value are indicated as
follows (Mankiw, 2014)
 The availability of close substitutes
 Nature of good i.e. basic or luxury
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