price elasticity of demand and productivity
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Please discuss the price elasticity of demand and productivity (considering the law of diminishing return) for Pepsi.
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Price elasticity of demand and productivity for Pepsi.
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The price elasticity of demand tells us how much the quantity demanded will change when the price changes. It is represented by the slope of the demand curve at each price. For some products, people continue to buy similar quantities regardless of the price. Such goods are said to have an "inelastic" demand curve. They include goods such as medicine, which are necessities without any substitutes. Other goods have a high elasticity of demand; when price declines, they buy significantly more, and vice versa. When demand is elastic, the firm's total revenue increases when it lowers price. Most demand curves have an elastic section, where price is high, and an inelastic region, where prices are lower.
Pepsi's ultimate goal is the sell where its marginal revenue is equal to its marginal price. If demand is inelastic, total revenue goes down as it sells more. Marginal revenue is therefore negative in that price range. Negative marginal revenue means that ...
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