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internal business growth

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Introduction

1) Price Elasticity of Demand = Original Price � Original demand � Change in Demand � Change in Price = 200�800 � 200�40 = 0.25 � 5 = 1.25 2) The price elasticity of demand is defined as the "proportionate response of changes in quantity demanded to a proportionate change in price". The price elasticity of demand for turntables is relatively elastic as it has a value of elasticity that is greater than one. This value indicates that a change in the price of the turntables will bring about an even larger change in the quantity demanded. This can be seen in this particular scenario, where a forty pound increase in the price of the turntables resulted in a two hundred unit decrease in the number of turntables sold. 3) Initial Sales Revenue= Quantity � Price = 800 units � �200 = �160,000 Sales Revenue after Price Increase= Quantity � Price = 600 units � �240 = �144,000 Difference in Sales Revenue Due to Price Increase= �160,000 - �144,000 = �16,000 The decision to raise prices was not wise. As shown in the calculations above, Hall Ltd has made �144,000 after raising prices as compared to the initial �160,000. This is a difference of �16,000, which has been lost due to the decrease in sales as a consequence of increasing the prices. 4) Hall Ltd wants to expand to become a Public Limited Company (PLC). The main reason behind this decision is for Hall Ltd to increase its revenue and eventually make the company more profitable. ...read more.

Middle

They would then be able to have a lesser rate of interest charged when borrowing funds, and this would also be beneficial in its campaign to expand. When contemplating to become a PLC, it is crucial for Hall Ltd to decide if the nature of its business and product is attractive enough and whether it has the potential for long term growth in order to convince investors to put money into the company when it is initially listed. Businesses are generally divided into two broad categories. They are either a price competitive business or a business with a durably competitive advantage. Businesses which are price competitive tend to compete solely on price, as there would be many other businesses which provide the same type of product and hence they compete for customers. They best fit into a market which is in perfect competition or monopolistic competition. A company with a durably competitive advantage is one that offers consumers a unique selling point. This usually comes in the form of a strong brand name or an effective logistical or distribution system, which sets them apart from the rest of their competitors. Examples of this type of businesses are Nike, Coca-Cola and McDonalds. Such businesses would have a good prospect of earning abnormal profits in the long term, and they would usually feature in a monopoly market where only one firm dominates the market, or an oligopoly, where there are a few firms that tend to dominate the market. ...read more.

Conclusion

There would also be a requirement to constantly publish and update the financial status of the company for the general public to see if Hall Ltd becomes a PLC. This would mean that there would be greater administrative costs involved and its competitors would have access to information that could be sensitive and important. Therefore the management of Hall Ltd must be convinced that the benefits of becoming a PLC should outweigh and compensate for over and above the costs involved in the process of floating the company on the stock exchange and also the costs that may occur after the company has been listed. In conclusion, although Hall Ltd may possibly gain a high inventory turnover or a high profit margin through economies of scale and branding from the capital gained by becoming a PLC, the nature of the market it is in and the product it sells, will not make it very successful as a listed company. A fundamental reason for this is because it sells turntables, which is price competitive and it also does not have a durably competitive advantage as it heavily relies on the successful sales of hi-fi systems in order to be profitable. Also, the costs incurred for floatation seem to outweigh the advantages that can be gained from listing and thus the idea of expanding to become a PLC is not worth pursuing. Hall Ltd should seek an alternative way of expanding through diversifying the range of products it sells instead. ?? ?? ?? ?? 0818158 1 ...read more.

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