As we know the law of demand, consumer will respond to a price decrease by buying more of a product. This is a marketing technique used by many firms to gain profit. Price elasticity of demand implies the responsiveness or sensitivity of quantity demanded of a good or a service by consumers to a change in its price, all other things remaining constant. For instance, if the demand is elastic then there is a large change in quantity demanded even when price changes by a small amount; whereas when demand is inelastic there is a very small change in quantity demanded, even when there is a large change in price. According to Mc Connell textbook, there are arounds three main determinants of Price Elasticity of Demand. The first one is the availability
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Consumers will attempt to buy necessary products regardless of the price. Luxury products, on the other hand, tend to have greater elasticity. The third determinant is the brand loyalty, like an attachment to a certain brand can override sensitivity to price changes, resulting in more inelastic demand. Therefore, we can apply some determinants of price elasticity of demand to our firm Michel et Augustin. The most relevant might be the occurance of having close subsitute to their product. If we look at the product in general a lot of brand are doing cookies, and a lot of other brands are producing this product. However with the development of the firm, they created new product like “La Vache à Boire”, which is simply a yogurt in a bottle. There is no close substitute to this product. It is an elastic product as it can be considered as a necessity rather than a luxuary. Nevertheless, we cannot use the third determinant of price elasticity as the brand is not big enough yet to be able to have consumers’ attachment and willingness to buy the product because of the fame of the …show more content…
In other words, Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs. According to Chron website, they refer to “the idea that as more products are produced, the marginal cost or cost per unit decreases because of increased efficiencies. Overhead costs can be shared over more products.” For instance, the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies. On the other hand, we can talk about Diseconomies of Scale. According to our textbook written by McConnell, “The main factor causing diseconomies of scale is the difficulty of efficiently controlling and coordinating a firm’s operations as it becomes a large-scale producer.” Diseconomies of scale can be explained as when a business or organization becomes so big, or so inefficient, then the cost-per-unit of its products and services starts to rise. A business can only grow so much before the benefits of growth begin to create additional costs and resources. In this case, additional output becomes more expensive. For the moment,
Consumers will attempt to buy necessary products regardless of the price. Luxury products, on the other hand, tend to have greater elasticity. The third determinant is the brand loyalty, like an attachment to a certain brand can override sensitivity to price changes, resulting in more inelastic demand. Therefore, we can apply some determinants of price elasticity of demand to our firm Michel et Augustin. The most relevant might be the occurance of having close subsitute to their product. If we look at the product in general a lot of brand are doing cookies, and a lot of other brands are producing this product. However with the development of the firm, they created new product like “La Vache à Boire”, which is simply a yogurt in a bottle. There is no close substitute to this product. It is an elastic product as it can be considered as a necessity rather than a luxuary. Nevertheless, we cannot use the third determinant of price elasticity as the brand is not big enough yet to be able to have consumers’ attachment and willingness to buy the product because of the fame of the …show more content…
In other words, Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs. According to Chron website, they refer to “the idea that as more products are produced, the marginal cost or cost per unit decreases because of increased efficiencies. Overhead costs can be shared over more products.” For instance, the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies. On the other hand, we can talk about Diseconomies of Scale. According to our textbook written by McConnell, “The main factor causing diseconomies of scale is the difficulty of efficiently controlling and coordinating a firm’s operations as it becomes a large-scale producer.” Diseconomies of scale can be explained as when a business or organization becomes so big, or so inefficient, then the cost-per-unit of its products and services starts to rise. A business can only grow so much before the benefits of growth begin to create additional costs and resources. In this case, additional output becomes more expensive. For the moment,