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MARKETING 1. What is price elasticity, and what is known about it in competitive market situations?...

MARKETING

1. What is price elasticity, and what is known about it in competitive market situations?

2. How do the pricing strategies followed by large firms and small firms differ?

3. Explain why the cheapest brand is generally not the largest brand in its category.

4. Discuss the difference between cost based and market based pricing.

5. On average, if a company can raise prices by 1%, how much does their operating profit change? Why is the answer quite different to 1%? Are there any problems with this scenario?

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Answer #1

1) Price elasticity of demand is the degree of responsiveness of quantity demanded due to some change in price keeping other factor constant. Normally in case of perfect competition, there is perfectly elastic demand for an individual firm. Higher the competition, higher will be the elasticity because when there are large number of firms people switch to other firms leading to change in their demand.

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