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Does raising prices always result in more profit?

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Introduction

´╗┐Unit Code & Name: Student ID: Name: Lecturer: BEA683 Economics for Managers 150222 Chunlan Huang Dr Bruce Felmingham OFFICE USE ONLY Assignment received: I declare that all material in this assignment is my own work except where there is clear acknowledgement or reference to the work of others. I am aware that my assignment may be submitted to plagiarism detection software, and might be retained on its database. I have read the University statement on Academic Misconduct (Plagiarism) on the University website at www.utas.edu.au/plagiarism or in the Student Information Handbook. Signed?Chunlan Huang?????????????????. Date ?20/05/2011??????????????? Assessor?s comments: Assessor?s Signature (optional) : Dated: Mark: _________ ________________ Raising Prices to Get More Profit or Not ??Analysis of IT Service Business Based on Price Sensitivity Studies have shown that pricing is the most difficult and important issues in today?s competitive business environment because there are many factors to consider. For IT services businesses who want to maximize its profits, here are some guidelines that would help managers with their decision. ...read more.

Middle

For products or services with >1, i.e. elastic demand, that is, the change of demands are much faster than the change of price. In this circumstance, increasing 1% of the price would result in greater than 1% of decreasing demands. Thus, increasing price would lead to a loss of revenue and profits. For products or services which demands are extremely sensitive to the price, the company may be better off at a much lower price with substantially greater demands instead of higher price. In contrast, with <1, i.e. Inelastic demand indicates that price increase might be feasible because demands is not that sensitive to the price. Therefore, increasing price would lead to higher revenue and profits for products or service. Empirical Analysis of IT Service Business Being an IT service business, it provides a wide range of technology solutions and associated services ranging from computer repairs and networking services to custom software programming. If you are running a big business offering advanced professional consulting and technology service, it would be quite different from small companies that only provided repair and maintenance services. ...read more.

Conclusion

If they increase the price, their sales will plummet as most of their customers would transfer to the competitors who can provide the some products or services with lower price. Company B regularly adjusted prices to the market prices. They may be able to implement a small price increase strategy in order to get more revenue and profits, but it depends how much more their customers are willing to spend. Conclusion By analyzing price elasticity of demand for each kind of company, we can determine how much to charge for our products and services. IT service companies can determine the price elastic of demand by performing experiments that above and below current price. If they want to launch a new price strategy, they should evaluate the strength and potential risk of this new strategy and estimate how much it had impact on revenue and profits due to price change. For products or service with inelastic demand, it might be feasible to get higher revenues and profits by increasing price, while for products or service with elastic demand, raising price is risk, it may result in a loss of revenues and profits. ...read more.

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