Lec 19 Input of Elasticity in Decision Making

The input of Elasticity in Decision Making
The concept of price elasticity of demand has important practical applications in managerial decision-making.
Uses of price elasticity can be pointed out as below:
Price fixation
Price discrimination
Public utility pricing etc....

1. Using Elasticity in Managerial Decision Making Unit 19 Instructor: Atta Hussain Syed

2. Using Elasticity in Managerial Decision Making The concept of price elasticity of demand has important practical applications in managerial decision-making. Uses of price elasticity can be point out as below:

3. 1. Price fixation: Each seller under monopoly and imperfect competition has to take into account the elasticity of demand while fixing their price. If the demand for the product is inelastic, he can fix a higher price . Using Elasticity in Managerial Decision Making

4. 2. Price discrimination:  A monopolist adopts a price discrimination policy only when the elasticity of demand of different consumers or sub-markets is different. Consumers whose demand is inelastic can be charged a higher price than those with more elastic demand. Using Elasticity in Managerial Decision Making

5. 3. Public utility pricing: In case of public utilities which are run as monopoly undertakings e.g. elasticity of water supply railways postal services, price discrimination is generally practiced, charging higher prices from consumers or users with inelastic demand and lower prices in case of elastic demand. Using Elasticity in Managerial Decision Making

6. 4. Super Markets:  Super-markets are a combined set of shops run by a single organization selling a wide range of goods. They are supposed to sell commodities at lower prices than charged by shopkeepers in the bazaar. Hence, price policy adopted is to charge slightly lower price for goods with elastic demand. Using Elasticity in Managerial Decision Making

7. 5.Shifting of tax burden:  It is possible for a business to shift a commodity tax in case of inelastic demand to his customers. But if the demand is elastic, he will have to bear the tax burden himself, otherwise demand for his goods will go down sharply. Using Elasticity in Managerial Decision Making

8. 6.Production: Producers generally decide their production level on the basis of demand for their product. Hence elasticity of demand helps to fix the level of output. Using Elasticity in Managerial Decision Making