• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

A firm that produces yoghurt is given the following information the price elasticity of demand of various flavours: Strawberry (-0.8), Vanilla (-1.0), Pineapple (-2.5). Explain the pricing policy that the firm should adopt for each of the flavours if it wants to increase total revenue. [8]

Extracts from this document...

Introduction

Transfer-Encoding: chunked A firm that produces yoghurt is given the following information the price elasticity of demand of various flavours: Strawberry (-0.8), Vanilla (-1.0), Pineapple (-2.5). Explain the pricing policy that the firm should adopt for each of the flavours if it wants to increase total revenue. [8] The price elasticity of demand is used to measure the responsiveness of the demand in relation to the changes in the price of a product. It is calculated by dividing the percentage change in quantity demand caused by the price change, by the percentage price change itself. ...read more.

Middle

in order to increase total revenue, as, due to the low elasticity, the increased revenue from the price increase will outweigh the fall in consumption resulting from it, thus increasing total revenue. As the value for the price elasticity is relatively close to unitary elasticity however, it might also be advisable to also adopt non-price strategies such as increased spending on advertising to further lower the price elasticity to demand. The Vanilla flavour shows to have unitary elasticity, meaning that any change in price will have a perfectly proportional effect on consumption. ...read more.

Conclusion

Pineapple appears to have a very high price elasticity of demand, meaning that consumers will have a very large increase in consumption following a change in the price. Thus, in order to increase total revenue the firm should attempt to lower the price of pineapple flavoured yoghurt as this would lead to an increase in consumption that would more than make up for the lost per unit revenue resulting from the price drop, and in turn increase total revenue. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Marked by a teacher

    Discuss the merits of road pricing (25)

    4 star(s)

    This means that, as these more environmentally friendly methods of transportation are improved, people will be more willing to use them as an alternative to cars, meaning a further reduction in congestion, and thus a reduction in the harmful emissions the economy produce.

  2. Peer reviewed

    Income and Price Elasticity of Demand

    3 star(s)

    Usefulness Calculating XED means you can work out a pricing strategy for compliments to maximize sales and revenue, for example, cutting the price of cinema tickets to sell more popcorn. Also you can judge the impact of a rival substitute price changes on a demand and revenue for its own product.

  1. Goals of a Firm

    Economies of scale can be classified as internal and external. Internal economies of scale relates to the cost saving advantages within a firm and external economies of scale refers to the cost-saving advantages outside the firm that can affect the business.

  2. Case #1: Canadian Briefing Note (LCBO)

    It is also a significant component of the economy of the province. It generates $2.9 billion a year in taxes and profits. The LCBO also contributes to the economy of Ontario in salaries, rents, and the purchase of various goods and services.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work