17 Questions
What is the relationship between volume and price change elasticity?
Volume changes inversely with price change elasticity
In which type of market do small price changes have a large impact on the quantity sold?
Elastic markets
What is the primary implication of a predicted improvement in profitability due to a price reduction?
Price reduction is likely to be beneficial
What is the importance of volume hurdles in pricing decisions?
Volume hurdles are the first check on pricing decisions
Why are fixed costs considered irrelevant for marginal price change decisions?
Fixed costs should be covered through price changes
What does the term 'elasticity of demand' measure?
The changes in volume associated with a price change
What does a high elasticity of demand imply?
Small price cuts result in substantial volume increases.
In inelastic markets, what happens when there is a large change in price?
Quantity sold decreases substantially.
What do inelastic markets favor to improve profitability?
Price increases
Why is brand-level switching easier than category-level switching for consumers?
Category-level switching requires more effort.
What does it mean if the elasticity of demand at the category level is less than that at the brand level?
Customers switch brands readily within a category.
What happens when there is a small elasticity of demand in response to a price increase?
Volume sold remains unchanged.
In an elastic market, a price increase would likely result in:
A decrease in total revenue
Which statement about inelastic markets is true?
Total revenue increases when prices are increased.
If a firm cuts prices below the optimal price, it is likely to:
Decrease profits
What is a primary challenge in using economic price optimization (EPO) models?
Identifying the relevant elasticity of demand
If a firm raises prices above the optimal price, it is likely to:
Decrease profits
Test your knowledge on elasticity of demand and understand the concepts of elastic and inelastic markets. Explore how price changes affect the quantity sold in different market scenarios.
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