Price Elasticity of Demand and its effect on Revenue

Hausarbeit , 2014 , 12 Seiten , Note: 2

Mathematik - Angewandte Mathematik

I have chosen to focus my mathematical exploration on applications of Calculus in Business situations. To begin with, I was looking for an interesting real life situation I could base my investigation on. Having lived in an economically well developed country like Germany for almost my whole life, the accessibility to a wide range of products and their varying appeal to the consumer are subconsciously part of my daily life.

The fact that some products are enormously demanded by society whereas others aren‘t that successful on the market gave me the idea to investigate how demand is influenced by outside factors. Thereby I discovered the concept of Price Elasticity of Demand which is useful in indicating the responsiveness of the demand of a certain good to a change in its price. I thus decided to explore the different levels of Price Elasticity of demand, namely elastic, inelastic and unit elasticity, and their effect on revenue by means of both an exponential and a quadratic demand function.

Finally I applied the acquired knowledge to a highly demanded and very popular product in Germany, which is coffee, and modeled its change in demand dependent on varying prices as well as outside factors such as brand loyalty and income.

Inhaltsverzeichnis

• Rationale
• Introduction
• Price Elasticity of Demand
• Effect of Price Elasticity on Revenue
• Application to a Real Life Situation
• Conclusion
• Literaturverzeichnis

Zielsetzung und Themenschwerpunkte

This mathematical exploration delves into the application of Calculus in business scenarios, specifically focusing on the concept of Price Elasticity of Demand and its impact on revenue. The investigation aims to analyze the responsiveness of demand to price changes, exploring different levels of elasticity (elastic, inelastic, and unit elasticity) and their implications for revenue generation. The study utilizes both exponential and quadratic demand functions to model these relationships and ultimately applies the acquired knowledge to a real-world example.

• Price Elasticity of Demand
• Effect of Price Elasticity on Revenue
• Modeling Demand Functions
• Optimum Price and Maximum Revenue
• Real-World Application

Zusammenfassung der Kapitel

The exploration begins by introducing the concept of Price Elasticity of Demand, explaining its significance in understanding the relationship between price changes and consumer demand. It highlights the factors influencing demand, such as the availability of substitutes, product indispensability, and brand loyalty. The text then delves into the connection between Price Elasticity and revenue, emphasizing the importance of modeling demand functions to predict the impact of price changes on revenue.

The exploration further examines the different levels of Price Elasticity (elastic, inelastic, and unit elasticity) and their respective effects on revenue. It provides a detailed analysis of how these levels influence the relationship between price changes and revenue, outlining the conditions under which an increase in price leads to an increase or decrease in revenue. The text also explores the concept of optimum price and maximum revenue, demonstrating how these factors can be determined using demand functions.

Finally, the exploration applies the acquired knowledge to a real-world example, demonstrating how the concepts of Price Elasticity and revenue optimization can be utilized in practical business scenarios. The text provides a comprehensive analysis of a specific product, highlighting the factors influencing its demand and revenue, and illustrating how these factors can be modeled and analyzed using the principles of Calculus.

Schlüsselwörter

The key terms and focus themes of this text include Price Elasticity of Demand, revenue optimization, demand functions, exponential and quadratic functions, optimum price, maximum revenue, and real-world application. The exploration delves into the relationship between price changes and consumer demand, analyzing the impact of different levels of elasticity on revenue generation. It utilizes mathematical models to predict the effects of price changes on demand and revenue, ultimately applying these concepts to a practical business scenario.

• Hochschule: Leipzig International School
• Note: 2
• Autor: Stefanie Mücka (Autor:in)
• Erscheinungsjahr: 2014
• Seiten: 12
• Katalognummer: V276575
• ISBN (eBook): 9783668178823
• ISBN (Buch): 9783668178830
• Sprache: Englisch
• Schlagworte: price, elasticity, demand, revenue