I have a project due for my economics class on automobile industry (General Moto
ID: 2441509 • Letter: I
Question
I have a project due for my economics class on automobile industry (General Motors). I need A qualitative assessment of the market demand for the firm’s products (e.g. elasticity of demand relative to other comparable products, extent to which the products are differentiated from that of potential competitors). – Industry Analysis •A qualitative characterization of the firm’s cost structure (e.g. high fixed cost, low marginal cost, etc.). Discuss factors that could cause the firm’s marginal costs to change. You should also include a detailed quantitative analysis of the cost structure. – Firm Analysis •A description of the firm’s current pricing strategy. This means a qualitative and quantitative assessment of the firm’s approach to pricing and a quantitative overview of its actual current prices. • An assessment of the usage of (or potential for) advanced pricing methods by this firm (e.g. price discrimination, versioning, etc.). • You may want to discuss any special considerations that impact the firm’s pricing strategies (e.g. learning by doing, reputation). Recommendations about the firm’s pricing strategy. Should they stay the course or should they adopt a different strategy? If they should change, how?
Explanation / Answer
Price elasticity of demand : It can be defined as a quantity demanded of a good or service to a change in price. It gives percentage change in quantity demanded to a one percent change in price.
Except for giffen and Veblen goods price elasticity of demand is always negative.
Demand for a good is inelastic when price elasticity of demand is less than one. Demand for a good is elastic when when price elasticity of demand is greater than one.
Point elasticity of demand : It is used to determine change in demand with in the same demand curve. A very small amount of change in demand is measured through this elasticity of demand.
Arc elasticity of demand : elasticity of one variable with respect to another at mid point.
Determinants of price elasticity of demand :
1) Price of the good or service : When price of the good increases then quantity of the demand decreases and vice versa.
2) Prices of related goods or services that is complimentary goods or substitute goods : If the price of the complementary goods increases then the demand for such goods is decreased. Similarly when the price of substitute rises People will want more of that good and less of its substitutes.
3) Income of buyers : When income rises so will the quantity demanded. When income falls so will fall.
4) Tastes or preferences of consumers : When the public desires, emotions or preferences change in favour of a product, so does the quantity demanded.
5) Expectations of the consumers : When people expect that the value of something will raise, they demand more of it.
Effects on Revenue : As price decreases in the elastic range , TR increase and in inelastic range TR decreases when price increases.
Industry analysis :
Factors affecting the firm's marginal cost :
There are two factors technology and prices of factors of production.
Technology : A technological change that increases productivity shift the product curves goes upward and the cost curves goes downward.
Prices of factors of production : An increase in the price of the factors of production increases costs and shift the cost curve upward.
Firm analysis :
Pricing strategies :
1) Pricing at a premium : business set their costs higher than the competitor's
2) Market penetration : Attracts buyers by keeping the prices at low costs
3) Economy pricing : To attract most price conscious customers.
4) Price Skimming : Setting the prices very high at an introductory phase.
5) Physcology pricing : It refers to techniques that marketers use to encourage customers to respond on emotional levels rather than logical ones.
6) Bundle pricing : Small businesses sell multiple products for a lower rate than consumers would face if they purchased each item individually.
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