3. FACTORS THAT INFLUENCE THE ELASTICITY OF DEMAND FOR LABOUR For one to understand, we use the terms elastic and inelastic. According to Mohr, Fourie, and associates (2008:160-162), Inelastic demand refers to when the quantity demanded changes according to a change in price. The percentage change in the quantity is less than the percentage change in the price for the product. Therefore, the price elasticity of demand, or the elasticity coefficient, is greater than zero, but smaller than one.
If their demand is high or concern with the upper standards so the price elasticity is to be totally different. Whatever customer demand just based on the elasticity of price. PROFIT IN PRICE DISCRIMINATION Price is maximized when the marginal revenue is equal to the marginal cost because demand is more and it will become more inelastic. MR=MC ADVANTAGES AND DISADVANTAGES Price discrimination has so many advantages. It may help the companies to increase their profits and revenue when companies get the benefits from this strategy they may be have some disadvantages like that the some costumers are not pay a high price it may be the cause in consumer surplus.
• Deciding on most profitable line of products (assuming that there are no other limiting factors). • Determination of sales mix in order to maintain the present profit. • P/V ratio is calculated for comparing product lines, profitability of individual factories/companies. Like other management accounting tools, concept of P/V ratio also has Limitations vis: • It indicates the profitability of a product line only if all the other factors remain constant. • It heavily relies on excess of revenue over Variable cost.
Price elasticity of demand is a relationship measure between the changes in the quantity of products demanded and the changes in product prices. It is used in economics in price sensitivity discussions because it indicates the responsiveness of a product’s demand on price changes in the market. The price elasticity of demand can either be elastic or inelastic depending on the changes in demand and the product cost. It is computed by dividing the percentage changes in the quantity of products demanded by the percentage of change in the price of the products demanded. Price elasticity of demand is elastic if a small change in price is followed with a big change in the quantity of products demanded for in the market.
Key to set the right price is in understanding economics. To achieve business revenue the product price multiplied by the number sold. A high price charged can end up selling fewer rooms and as result, a high revenue is denied. A low price in combination with a low number of rooms sold cannot increase your sales numbers. Pricing elasticity in hospitality is reflected by a response to price changes in the change of room demand.
In short period the elasticity is generally low and inelastic compared to long period as it takes time for the consumers to adjust their taste, preferences and habits. In long period consumer can adjust with tastes’ preferences, consumption pattern and their new substitutes, so its demand is elastic. The price elasticity of demand for a particular goods or services has huge implications for business. For example, if the price of the coffee is increases to 10 percent and if the demand fell by 5 percent as a result, organization would then know that the price elasticity of that particular good is elastic. But if they also increase the price of dairy milk chocolate by the same amount, and if price remained the same then they would have a relatively inelastic product.
The key to success for a manufacturer of shopping products is to gain access to the relevant retailers. Naturel is selling through retailer to the customers. The retailer provides a way to let the end user to buy it. They may not directly buy from us. By using this kind of place strategy, it benefits all sides of people.
By doing this it would allow the business to produce high level of gross profit margin. 2. Net Profit Margin: this margin measures a business net profit as a percentage of sales revenue. The formulae for this margin is Net Profit/Sales revenue X 100 = Net Profit Margin. This margin can be improved by increasing sales revenue or decreasing the cost of sales and business expenses which can lead to a higher percentage of net profit
This can cause a problem, because it increases the perception in the minds of consumers that the entire product category is worth less than it used to be. Sales volume. If a company chooses to follow a premium pricing strategy, it will have to confine its selling efforts to the top tier of the market, which limits its overall sales volume. This makes it difficult for a company to pursue aggressive sales growth and premium pricing at the same time. The strategy can be followed as long as the company is expanding into new geographic regions, since it is still pursuing the top tier in these new markets.