...EGT1 – Task 2 Elasticity of Demand: Price elasticity of demand is the method used to quantify how reactive consumers will be to changing prices. It is calculated by dividing the percentage change in quantity of an item demanded by the percentage change in the item price. Elastic demand is when the percentage price increases results in a greater percentage decrease in demand or the reverse, when the percentage price decreases and results in a greater percentage increase in demand. Conversely, inelastic demand is when the percentage price increase results in a lesser percentage decrease in demand, or the percentage price decrease results in a lesser percentage increase in demand. On the other hand, unit elasticity is when the percentage increase or decrease in price results in an equal percentage decrease or increase in demand. Cross Price Elasticity: Cross price elasticity quantifies how reactive people are when purchasing one item, based on price changes of another item. It is calculated dividing the percentage change of the quantity demanded of the first item by the percentage change in the second item’s price. One type of cross price elasticity relates to substitute goods where the consumer has the option to choose between many similar goods. In this situation the consumer will likely substitute one good for the lower priced similar product. Substitute goods are established when the cross price elasticity calculation returns a positive number Another...
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...EGT1 Task 2: Elasticity of demand, also known as price elasticity of demand is defined as: measuring the responsiveness of demand to changes in price for a particular good. If the price elasticity of demand is equal to 0, demand is perfectly inelastic. Values between zero and one indicate that demand is inelastic. When price elasticity of demand equals one, demand is unit elastic. Finally, if the value is greater than one, demand is perfectly elastic. (Investopedia US, A Division of ValueClick, Inc., 2013) A perfectly elastic demand curve is horizontal and a vertical curve represents a perfectly inelastic demand curve. Elastic demand is a large change in quantity purchased for a given price change. The coefficient ends up as greater then one because the numerator is larger then the denominator in the equation. With inelastic demand there is a small change in quantity purchased for a given price change. The coefficient ends up less than one because the numerator is smaller then the denominator in the equation. Unit elastic is the quantity demanded and own price change the same percentage. The coefficient ends up being equal to one because the numerator and denominator are the same. Cross price elasticity of demand can be defined as measuring the percentage change in demand for a specific good caused by a percent change in the price of another good. There are two kinds of goods, complements and substitutes. Complement goods are goods that are used with one another for...
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...EGT1 Task Two A-Elasticity of Demand can be defined as the varying degree of demand of a service or good, with respect to its price fluctuation. In most scenarios, a drop in price can result in an increase and demand, and vice versa. Most secondary and tertiary needs will be subject to increased elasticity, however primary needs remain unchanged in most scenarios. High price elasticity indicates heavy dependency on price in determining demand. High price inelasticity is the precise opposite—when demand remains the same throughout price fluctuation, it’s demonstrative of inelasticity. Unit elasticity of demand occurs when proportionate shifts in price and demand are noted. B-Cross-price elasticity can be defined as the varying degree of demand in complementary or supplementary items as driven by price. When the price of one item is reduced, demand for a supplementary product increases. The increase in price in one product or service can impact complementary products or services accordingly as well. This makes sense, as the demand for a supplementary/complementary item is directly affected by the demand for the primary item. As an example, snowboards and snowboarding boots are complementary to each other. If snowboard prices dramatically dropped, demand for boots will increase. When substitute products are considered, this changes things. If milk prices soared, consumers may opt to purchase toaster pastries in lieu of cereal, opting for a lower...
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...EGT1 Task 2 Supply and Demand A. Elasticity of demand refers to the level of reaction that consumers will have to a change in price of a product. Elasticity of demand has 3 categories or results from the equation. The equation used to determine elasticity of demand is the percentage of change in quantity of demand divided by the percentage of change in price. After this equation is calculated you will need to compare the answer or coeeficient with the critical threshold. For elasticty of demand the critical threshold is 1. If the result is a number higher than the number one than the product will be said to be elastic. If the product is determined to be elastic than it is sensitive to price and consumers will react more by buying less of the product. Elastic products have a rate of more than one. If the result of the equation is lower than the number one than the product is said to be Inelastic. These products are considered less price sensitive than those that are elastic meaning that the reaction of less sales from consumers will be smaller than in a situation where a product is elastic. Finally, if the result of the equation is equal to the number one then the product is considered unit elastic. This occurs when any percentage change in price results in the exact same change in quantity demand. This is very rare and does not occur often. B. Another type of elasticity to measure is cross price elasticity. Cross price elasticity measures the consumer reaction...
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...EGT: Task 2 Elasticity of demand references the level of reaction that a consumer will display to a price change of a particular product. In general, this term describes a % change in the quantity demanded in response to % change in pricing. The general equation used to calculate elasticity of demand is defined as: (Gillespie, 2010). This number is then compared as a critical threshold. In the case of elasticity of demand, the critical threshold number is 1. If the result is greater than 1, the product is said to be elastic. Highly elastic products can offer a slight change in pricing and expect a sharp change in the demand for that product. If this number is less than 1, it is referenced as inelastic. These particular products are considered less price sensitive and can expect only slight demand for change in pricing, regardless of degree. In rare occasions, the elasticity of demand will be a perfect 1 and the unit will be considered unit elastic. Unit elastic essentially means that any change in price, whether large or small, triggers exactly the same percentage change in quantity (1- to -1 match). Cross price elasticity measures consumer responsiveness for the demand of a particular product to the change in price of a similar product. The equation for determining cross price elasticity is as follows: (Robert, 2008). Unlike elasticity of demand, this calculation is capable of producing negative results and the threshold number is 0. In the case of a positive...
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... governmental price regulation differs for firms in different competitive environments. Date: February 9, 2015 A) The Anti-‐Trust Laws Sherman Act (1890) The Sherman Act came about due to a growing public resentment of trusts. The antitrust legislation is broken down into two parts: • Section 1 “Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations is declared to be illegal.” Section 2 “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a felony” (Brue, Flynn, & McConnell, 2012) • Some results of the Sherman Act include the banning of various restraints of trade and monopolization. Another result was that it seemed to set a foundation for government action against monopolies, but the courts unfortunately...
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...EGT1 – TASK GUIDE INTRODUCTION: As you work on each of the Tasks please make use of the various resources posted and updated within the Business Undergraduate Economics Learning Community Task 1 Recorded Webinar TASK 1: MARGINAL ANALYSIS This Task centers on the competency of marginal analysis with two structured objectives. First is the requirement to describe the relationship between marginal revenue (MR) and marginal cost (MC) at the point of profit maximization. Second is the requirement to explain the concept of profit maximization. ACTIONS OF APPROACH: 1- Prior to turning in the Task, consider attending a Live Webinar on the Task. Students that attend are much more likely to pass the Task. You can always find an updated schedule of Live Webinars in the Community Pages (link at the top of this document). 2- This essay should be relatively short (1-3 pages) and can be written entirely from the concepts discussed within the McConnell e-text. In preparing for this Task you should read Chapters 7-11 of the McConnell e-text, with specific concentration on the information in Chapters 7 & 8. *Chapter 7 "Business and the Costs of Production" *Chapter 8 "Pure Competition in the Short Run" Chapter 9 "Pure Competition in the Long Run" Chapter 10 "Pure Monopoly" Chapter 11 "Monopolistic Competition and Oligopoly" 3- Formulate your responses to this Task in accordance with an “outline” format. More specifically, when writing your paper – list the Task Element and structure your...
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...EGT1 – TASK 1 Western Governors University EGT1 Economics and Global Business Applications Element A1 & A2 A1. Total revenue (TR) to total cost (TC) is cost, which is calculated using total revenue minus the total cost, (TR-TC). As each unit is produced, the total cost increases in addition to the total revenue. Yet, at some point in the production of the additional units, the total revenue will exceed the total cost. When it reaches that point, it becomes a loss. The point when profit maximization is the largest is bolded in the table below. |QTY |TR |TC |TR-TC | |0 |$0.00 |$100.00 |-$100.00 | |1 |$131.00 |$190.00 |-$59.00 | |2 |$262.00 |$270.00 |-$8.00 | |3 |$393.00 |$340.00 |$53.00 | |4 |$524.00 |$400.00 |$124.00 | |5 |$655.00 |$470.00 |$185.00 | |6 |$786.00 |$550.00 |$236.00 | |7 |$917.00 |$640.00 |$277.00 | |8 |$1,048.00 |$750.00 |$298.00 | |9 |$1,179.00 |$880.00 |$299.00 | |10 |$1,310.00 |$1,030.00 |$280.00 | A2. Marginal revenue...
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...EGT1 – Task 1 A. 1. The profit maximization is where there is the largest difference between total revenue and total cost. Total revenue, is what the widget(s) sells for. Total cost, is what costs to produce the widget(s).The profit maximization is where marginal revenue equals marginal cost. B. Marginal revenue is the additional revenue that will be made by Company A when it sells one additional unit of a product. C. Marginal cost is what it will cost Company A to produce one additional unit of product. D. The profit maximization occurs for company A at Q-8, both the Marginal Revenue, and Marginal Cost are both equal. Q TR TC TR/TC MR MC 0 0 10 -10 1 150 30 120 150 20.0 2 290 50 240 140 20.0 3 420 80 340 130 30.0 4 540 120 420 120 40.0 5 650 170 480 110 50.0 6 750 230 520 100 60.0 7 840 300 540 90 70.0 8 920 380 540 80 80.0 9 990 470 520 70 90.0 10 1050 570 480 60 100.0 11 1100 680 420 50 110.0 12 1140 800 340 40 120.0 13 1170 930 240 30 130.0 14 1190 1070 120 20 140.0 15 1200 1220 -20 10 150.0 E. If marginal revenue is higher than marginal cost, Company A should look into producing one or more products. F. If Marginal cost is higher than marginal revenue, the company is losing money every additional widget made. They need to look into producing a lower amount of widgets, where the marginal cost and revenue are...
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...EGT1 Task 1 Marginal Analysis Student Name Western Governors University Student ID: The primary focus of this paper is to demonstrate the concepts of marginal revenue and marginal cost, how the two are related to each other and how they are used by a company in profit maximization. By factoring, analyzing and comparing the various data on revenue and cost, a company can use a marginal analysis to determine the best direction to maximize profits. A marginal analysis is the “comparisons of marginal benefits and marginal costs, usually for decision making” (McConnell, 2011, p. 6). A. There are two methods to describe profit maximization. Further details of both methods and how each are used to determine profit maximization are as followed: 1. One method of understanding profit maximization is by using the relationship of total revenue and total cost. Total revenue is the total income that a company receives from a product or service. The price multiplied by the quantity of the product or service equates to the total revenue. Total cost is the total expense or cost to a company to produce a product or provide a service. Profit is determined by subtracting the total cost from the total revenue. Initially, as production or quantity increases, profit increases as well. There is a point, however, where the profit will maximize and then begin to diminish as the unit quantity increases. This point is where the greatest profit is realized in relation to the total revenue...
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...EGT1 Task 1 – Marginal Analysis The profit calculation of total revenue and total costs is Profit (P) equals total revenue (TR) minus total costs (TC) and focuses on maximizing this difference. Profit will be maximized when the total revenue, or the amount they would receive by selling that particular widget exceeds the total cost, or the costs associated with making this widget by the greatest amount. The greatest difference between these two is considered the profit.The profit calculation of marginal revenue to marginal costs is different where the company will compare the marginal revenue (MR) they would receive from selling one more widget to the marginal cost (MC) of producing that additional widget, and how much cost it would add to the total revenue and total costs. Profit maximization occurs when the marginal revenue received from the widget is the same as the marginal cost of producing the widget.Marginal revenue is calculated by dividing the change in total revenue (TR) by the change in quantity (Q) sold, which is calculated as ΔTR/ΔQ (MR = ΔTR/ΔQ) (Gish). Another way to figure marginal revenue is to take the total revenue of a particular quantity of widgets and subtracting the total revenue of one less widget. Quantity | TR | MR | 0 | $0.00 | $0.00 | 1 | $150.00 | $150.00 | 2 | $290.00 | $140.00 | 3 | $420.00 | $130.00 | 4 | $540.00 | $120.00 | 5 | $650.00 | $110.00 | 6 | $750.00 | $100.00 | 7 | $840.00 | $90.00 | 8 | $920.00 ...
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...EGT1 Task 1: March 15, 2013 A. Explain profit maximization from the following approaches: 1. Total revenue to total cost: Profit maximization occurs when total cost is subtracted from total revenue. The area where the largest gap occurs is where the greatest profit maximization occurs. 2. Marginal revenue to marginal cost: Profit maximization occurs when marginal revenue is equal to marginal cost. B. Explain the calculation used to determine marginal revenue. The calculation for marginal revenue is MR = ∆TR/∆Q (marginal revenue is equal to the change in total revenue divided by the change in quantity) 1. Discuss how marginal revenue increases, decreases, or remains constant in the given scenario. The marginal revenue decreases with each unit produced because at some point the marginal cost will be greater than the marginal revenue and at that point the company should halt production in order to avoid cutting into the profit margin. | | | | | |Quantity |TR |TC |MR | | | | | | |0 |$0.00 |$10 | | | | | | | |1 |$150 |$30 |$150 | | | | | | |2 |$290 |$50 |$140 | | | | | | |3 |$420 |$80 |$130...
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...EGT1 Task 1 Essay In this Essay I am going to explain the relationship between marginal revenue and marginal cost, and the importance of these concepts for profit maximization. One approach for profit maximization is by looking at the total revenue (TR) to total cost (TC). This is where the quantity being generated is yielding the greatest difference between the TR and the total TC. Another approach is using marginal revenue (MR) to marginal cost (MC). MR is the increase in revenue that results from the sale of one additional unit of output, and is calculated by the change in total revenue by the change in output quantity. Similarly, The change in total cost that comes from making or producing one additional item. You can figure out the profit-maximizing quantity of output by setting these two changes equal to one another. The process to determine MR You must first calculate TR. TR = Q * P the quantity multiplied by the price. So as your quantity goes up you need to look at the difference in price then divide by the quantity. Example below, Q P TR MR 0 80 0 1 76 76 76 2 72 144 68 3 68 204 60 4 64 256 52 5 60 300 44 6 56 336 36 7 52 364 28 8 48 384 20 Since this example is increasing by a factor of 1 we only need to worry about the difference in TR but if it increase but a factor higher than 1 we would need to take the difference in TR and divide by the increase in quantity. In our given example, below the MR starts...
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...Western Governors University Economics and Global Business Task 2 Egt1: Task 2 A) Elasticity of demand is describes as the degree of percentage change in demand for a good or service due to variation in price. Elasticity measurements can be expressed by three types of demand; inelastic demand, unit elastic demand, or relatively elastic demand. To determine the percentage of change in demand for a product or service the price elasticity equation and coefficient are used. The coefficient Ed is defined as “the percentage change in quantity demanded of product divided by the percentage change in price of product X” (McConnell, Brue, Flynn, 2012, pg. 76) The three expressions of Ed are Elastic, Inelastic, and Unit Elasticity. Elastic demand occurs “if a specific percentage change in price results in a larger percentage change in quantity demanded” (McConnell, Brue, Flynn, 2012, pg. 77). For a product with inelastic demand Ed < 1. An example of elastic demand is when there is a 2% decrease in the price of chocolate that results in a 6% increase in quantity. Ed= .06/.02 = 3 Inelastic demand occurs “if a specific percentage change in price produces a smaller percentage change in quantity demanded.”(McConnell, Brue, Flynn, 2012, pg. 77) For products with inelastic demand Ed <1. An example of inelastic demand is when there’s a 2% decrease in the price of milk that results in a 1% increase of demand. Ed= .01/.02 = .5 Unit elasticity of demand occurs “where a percentage...
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...Economics and Global Business Applications EGT1 Task 2 July 17, 2014 Elasticity of demand can be described as the percentage of change that occurs when the demand for a product or service changes because of a change in the price. An organization can reduce the price of a product or service, which in turn, will increase the demand for this product or service. This will increase the revenue for the organization. There are three ways to measure the elasticity demand in a product. The first is inelastic demand, the second is unit elastic demand, and the third is relatively elastic demand. Inelastic demand is defined as, “a change in price will result in a reduction of quantity demanded, which will then lead to a revenue decrease” (McConnell, Brue, Flynn, 2012, pg. 76). The following shows elastic and inelastic demand results. When Jones Hardware sells 100 screws for $0.50 each, the revenue is $50. The manager runs a sale on screws for $0.25 each and they sell 300 screws the revenue from that sale is $75, bringing in additional revenue of $25. This is elastic demand. If Jones Hardware had only sold screws at $0.25 but had made less revenue than it would be inelastic. “A percentage change in price and the resulting percentage change in quantity demanded are the same” (McConnell, Brue, Flynn, 2012, pg. 76) is unit elasticity of demand. When Jones Hardware discounts the screws by 5% and there is an increase in demand of 5%, unit elasticity occurs. “The response of...
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