Business Economics Success – Price Elasticity and Total Revenues!

In order to explain the relationship between total revenue and the price elasticity of demand, people need to understand what total revenue is. Total revenue is the amount paid by buyers and received by sellers of a good. Total revenue is computed as the price of the good times the quantity sold. Since price is part of the equation for total revenue, it is easy to see the relationship between the two, and how a change in price could affect the total revenue of a firm.

By computing the price elasticity of demand, firms could determine if the product or service that they are selling is “price elastic” or “price inelastic.” If the price elasticity value is greater than 1, then the demand for that product is sensitive to price changes. If the price elasticity value equals to 1, then the demand is considered “unit elastic,” and if the price elasticity value is less than 1, then the demand is considered price inelastic to where the demand is not sensitive to price changes at all. When analyzing price elasticity, the absolute value should be used, therefore, ignoring the negative value.

The price elasticity of demand could also assist with determining if a product has “perfect elasticity” or “perfect inelasticity.” Perfect elasticity occurs when even the slightest change in price affects the quantity purchased by consumers. Perfect inelasticity refers to a scenario where customers demand the same quantity of a good no matter how much the price changes. Therefore, if a firm calculates the price elasticity of demand for a certain product and the value from the calculations is “infinite,” then the product has perfect elasticity. If the value from the price elasticity of demand calculation is zero, then the product is considered to have perfect inelasticity. These two concepts are important because if the firm is having difficulties selling a certain product, and they know that the product has perfect elasticity, they could lower the price of that product in an effort to increase the demand for that product, which is in accordance with the “law of demand.” In contrast, if a firm concludes that their product has an elasticity value of zero, then that product is considered as having perfect inelasticity, therefore, the firm would know that changing the price of that product would not affect the demand for that product.

Please note that the price elasticity of demand for a product can have a positive or negative impact on a firm’s total revenue. For example, if a firm determines that their product is price elastic, they could lower the price of that product to increase its’ demand. This would negatively impact the firm’s total revenue because lowering the price of any product automatically lowers the firm’s total revenue. Furthermore, because the firm is now producing more due to the lowered price, it would increase their costs of production due to the additional inputs that are required to produce the additional quantities. If a firm determines that their product is price inelastic, the firm could increase the price of that product to impact positively the firm’s total revenue because regardless of the price, consumers will still have the same demand for that product.

With this in mind, firms need to be careful when making adjustments to price based on the price elasticity of demand because of the impact on total revenue. One of the main goals of businesses owners is to have his or her product reach a state of equilibrium, both in price and in quantity, because they do not want to have a surplus or shortage of that product in the market.

In order to minimize some of the risks associated with the price elasticity of demand on total revenue, firms could use averages to calculate and forecasts future price and the quantity of a certain product. For example, the “midpoint method” could be used when calculating the price elasticity of demand between two points by dividing the percentage change by the midpoint (average) of the initial and final levels. Furthermore, firms need to make sure that they accurately calculate the marginal costs and marginal revenue for that product because of the impact that it has on the total revenue of a firm due to the additional units being produced. If the marginal revenue is greater than the marginal cost, then the firm would know to increase its output. If the marginal cost is greater than the marginal revenue, then the firm would know to decrease its output. In order for a firm to maximize its profits, it needs to produce the quantity at which the marginal cost equals the marginal revenue, thus impacting total revenue positively.

How To Market Your Business Economically And Successfully

The most effective way that you can build your business and make money is to market it properly. Many companies spend countless thousands of dollars and time on poor marketing strategies, which needs to be channeled properly so as to make a profit.

The first thing that you have to know and grasp thoroughly is what exactly is your business (do not laugh many people want to be too many things to too many people and thus miss their calling and their market). Study carefully what it is that you do and then see what you can do to package it for marketing.

The most important thing that you can do is to market your product and services properly; if you do not do this then you will fail. You can be the greatest artist in the world (Rembrandt or Picasso) but if no one knows who you are what is the point? Proper and effective marketing is the key to success in business.

Now the question is: what is good marketing? I will of course say from the start that each business has unique aspects to itself that have to be addressed while marketing. There is no universal marketing tool that is good for everyone. However, with that being said there are some key marketing practices that can be utilized by any business and get good results, how good depends on you and your follow through.

Good marketing is to know exactly what it is that you offer, have it package to market, and deliver it to those that want and need it. Now the question has to be modified to the offering of the business or service. For example, as an artist I can draw anything, however, no one wants or can use anything, people need or want something specific. So with that in mind I have focused my art on house portraits and made an effort to practice my skills so as to be the best. Then I rent booths at real estate trade expos and distribute information to all the Realtors as they pass. I have a bowl front and center on my table for them to put their business cards in. When I get back to my studio I take all the business cards that I gather and contact the agents. This is very effective and gets results quickly. This example can be done for any business, a hair stylist, accountant, or lawyer. The key is to fine tune your skill and go to venues that have people that want and need your business and then follow through with them afterwards. If you do not follow through you will lose most of the business that you had hoped to gain. You will find that this will be a great success to you in your business and you will not have to waste your time trying to sell all of your friends and relatives what you offer.