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Financial Management

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As the research starts to come in about your expansion opportunities abroad, the marketing department has discovered that the price elasticity for CPI's products in Brazil is expected to be much greater than in current markets served. Separately, your CFO sent you an e-mail earlier in the week stating that depending on how much business CPI does abroad, the firm would expose 5 to 20 percent of revenue to currency fluctuations (the Real and Euro are the currencies for Brazil and Germany respectively).

Both of these issues are of concern to you, so you decide to have a meeting with the VP of Marketing and the CFO. Explain the differences among inelastic, elastic, and unitary price elasticity to the VP and CFO. Then, what questions would you ask? What recommendations would you have for the CFO?

Explain the differences between elasticity, inelasticity, and unitary price elasticity to the VP and CFO, considering that they might not fully understand these concepts. Explain these concepts as they apply to CPI.

Questions to be asked might include "what is the price elasticity of CPI's products?" "Why is CPI products relatively elastic or inelastic?" "How would greater price elasticity in Brazil affect pricing strategies, sales, and revenue?" "What are the risks of currency fluctuations and what strategies can CPI use to mitigate these risks?" "What is the political climate like in those countries and can it affect CPI?"

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The response addresses the queries posted in 1516 words with references.

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The response addresses the queries posted in 1516 words with references.
//In the following section, discussion is conducted over the differences between the inelastic, elastic, and unitary price elasticity for explaining to the VP and CFO//

Elastic, unitary and inelastic refer to the demand price elasticity. This form of elasticity is used for measuring demands of the goods in comparison to the fluctuation of prices of those goods and services. Demand of the goods is measured through stating unitary, elastic, and inelastic prices. Electricity of the products often differentiates between the products, as some products are in more demand than others (Consumer Price Index (CPI): An Important Measure of Inflation 2012).

Elastic demand occurs when the change in demand is greater than the price change. Demands of the products or goods are elastic. When demands are elastic, change occurs in price that leads to the huge amount of product demand.

Inelastic demand occurs with changes in demand being less than change in price of the product and goods.

Unitary inelastic occurs when the products, which are considered inelastic, are those products that are necessary. Changes in price don't change the product demand. Goods, which are considered unitary in the terms of goods elasticity, result into effect when price changes.

//In this section, questions are included that have to be asked from VP and CFO, which are based on the price elasticity//

What's the price elasticity of CPI's products?

Consumer product Inc is facing lot of challenges in the management and it has limited market, as there is competition from big organizations that deal with the expansion of products. It requires macroeconomic policy in order to review the existence. Price elasticity is the demand and supply measure for changing the price. Elasticity measures responsiveness. Substitution elasticity in the Consumer Product Inc is calculated at one level utility, which is function of quantities and domestic output that is imported to all the countries.

Recent studies are conducted over the products in which products are adapted to avoid the correlations and obtain the relationship for long term. In CPI, there are homogenous products whose prices lead to equalize through the arbitrage, as suppliers are considered price takers under the market, which has perfect competition. It is assumed that perfect competition can overestimate the substitution elasticity, as individual suppliers have confronted with the perfect curve of elastic demands.

Products of CPI are priced with US $. The effect in the US can be underestimated because the ...

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Ashish Sharma, MBA (IP)
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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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