Analyzing Elasticity of Demand Simulation
DigiVal & DigiVal Plus Manufacturing Company sells a range of computers, notebook computers, desktop computers, high-end servers and has a market share of 22 percent, along with another office in the U.K. with sales in Europe at 30 percent total sales. There are three team members who are qualified to get the companies market back on track. CEO, B.J. Downey, who targets the strategies, goals and revenue targets has steered DigiVal for the past 12 years. George Hernandez, Group Economist, who handles the analysis of economic trends in the market, Linda Jacobs, Product Manager, contributed vision and strategies within the company and Brent Richardson, Product Manager, that has a strong background in research and intuitive skills with an edge in predicting market behavior. The Three Concepts
There are three concepts that must be acknowledged and used to solve the problems at hand: elasticity, price elasticity of demand and income elasticity of demand. Price Elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Elasticity helps businesses determine pricing policies that can be used to increase revenues. In the first scenario of July-September, DigiVal and DigiVal Plus has led to a slowdown in the market. A higher price must be set to increase revenue for DigiVal. The price decreases when revenue increases. DigiVal Plus was achieved, but when calculated the demand for DigiVal fell short in the quarter. The target has been missed by a wide margin and the price that had been set was very high. At $858, the revenue was $640.93 million, which was in an elastic range of the demand curve where elastic is more than 1, decreasing the price, which increased revenue. The demand was nearly achieved for DigiVal Plus target. In the second scenario of October-December, the best results were to increase the revenue and decrease demand for DigiVal. Computers are in demand...
References: Colander: Economics, Fifth Edition, Microeconomics II, Describing Supply and Demand: Elasticity 's
Gary E. Clayton, Ph.D., Economics Principles and Practices, Glencoe/McGraw-Hill
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