1. Price elasticity of demand is an important tool for managers in a selling env
ID: 2902424 • Letter: 1
Question
1. Price elasticity of demand is an important tool for managers in a selling environment in deciding what to put on sale. Assume you are the District Manager of a grocery chain which sells everything like Ralphs or Albertsons. What will you put on sale in your district during the Valentine's Day week? You must provide your reasons.
2. As a Manager, your goal is to maximize profit of your business. Assume you are in charge of managing your company's costs - you are the Controller of Accounts and all purchases must be approved by you. With appropriate examples, illustrate how you and your Division will contribute to maximizing profit of your business.
Explanation / Answer
1. It depends on what you want to buy. One store may be the cheapest for an item, but the most expensive for another. It is upto you to do your research. Even from store to store, prices vary. A Ralphs located near USC is much cheaper than one located in Malibu. Albertson's is the cheapest. Safeway/Vons is the largest grocery store chain in California and Albertson's was 2nd. However, many Albertson stores have closed. Ralph's tends to be more expensive than Safeway on some things and less on others.
#1.If demand is price inelastic, an increase in price will lead to increase in revenue because the percentage increase in price will cause a smaller decrease in quantity demand. If demand is elastic, an increase in price will lead to a decrease in revenue because the percentage increase in price will cause more reduction in quantity demanded.
2.Companies may take different approaches to maximize profit or minimize loss based on their own organizational strengths. While product differentiation and low price can be critical to maximizing profit, controlling cost and maintaining market share may be more important in to minimizing loss. Regardless of what assets a company owns and how much cash it holds, loss over extended periods of time will eventually weaken a company's asset positions and decrease the amount of its cash holdings.
#2. minimizes the break-even point.
maximizes the contribution margin per unit of the constraint.
minimizes the contribution margin per unit of output.
minimizes total fixed costs.
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