∴ Required price elasticity = It is the elasticity of the quantity demanded of a good or service to a change in its price
Q1: How likely is this volume increase? Discuss! If the company had a price cut by 20%, they should increase their sales volume before it happens. After the price cut the company will be faced with a situation of -18.66% volume increase, meaning that they will need to increase their sales volume to became to the initial position.
Q2: If business conditions force a 20% price cut on J.C. what overall business adjustments would you anticipate for J.C.? Discuss! They should be prepared to decrease their revenue by 20%, meaning that they will need to find alternative solutions to keep the company profitable. One business adjustment that J.C. could develop is based on cost reduction. Finding ways to decrease the price of production will be fundamental to eliminate this 20% gap on their final balance sheet. For example, by decreasing 20% of their production cost, the company will be faced with the same scenario before the 20% price cut.
Q3: How would your response to Q1 above change if the initial contribution was 50%. (NOTE: this question does not require any further calculation!)
With a contribution margin of 50% the scenario would be completely different and the company would be faced with an
