Analysis Simulation On Elasticity And Demand

Analyzing Elasticity of Demand Simulation

DigiVal & DigiVal Plus Manufacturing Company sells a range of computers, notebook computers, desktop computers, high-end servers and has a market share of 22 percent, along with another office in the U.K. with sales in Europe at 30 percent total sales. There are three team members who are qualified to get the companies market back on track. CEO, B.J. Downey, who targets the strategies, goals and revenue targets has steered DigiVal for the past 12 years. George Hernandez, Group Economist, who handles the analysis of economic trends in the market, Linda Jacobs, Product Manager, contributed vision and strategies within the company and Brent Richardson, Product Manager, that has a strong background in research and intuitive skills with an edge in predicting market behavior.

The Three Concepts

There are three concepts that must be acknowledged and used to solve the problems at hand: elasticity, price elasticity of demand and income elasticity of demand. Price Elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Elasticity helps businesses determine pricing policies that can be used to increase revenues.

In the first scenario of July-September, DigiVal and DigiVal Plus has led to a slowdown in the market. A higher price must be set to increase revenue for DigiVal. The price decreases when revenue increases. DigiVal Plus was achieved, but when calculated the demand for DigiVal fell short in the quarter. The target has been missed by a wide margin and the price that had been set was very high. At $858, the revenue was $640.93 million, which was in an elastic range of the demand curve where elastic is more than 1, decreasing the price, which increased revenue. The demand was nearly achieved for DigiVal Plus target.

In the second scenario of October-December, the best results were to increase the revenue and decrease demand for DigiVal. Computers are in demand in most companies. The lower price of notebook computers encourages consumers to buy more and spend less on desktop computers, which are used more throughout businesses. A decrease of percentage in demand of 8.5% at a price of $612 and the demand had fallen slightly short of maximizing revenue.

In the third scenario of January-March, there was an increase in both production levels for DigiVal and DigiVal Plus. A 40% decrease in price of office suites. The quantity demanded increases and both demand curves shift to the right. There is a complementary relationship between the two products, which is stronger than the DigiVal suites and DigiVal Plus. The level of shift in demand for DigiVal is greater than the demand for DigiVal Plus. 1,099,000 units of DigiVal, which was manufactured, are more than the estimated quantity demanded in this quarter. A cross-price of -0.25 is a 10% increase in demand. 201,000 units of DigiVal Plus was increase in demand.

In the fourth scenario of April-June, the incomes temporarily increased by an average of 15% after tax refunds. The quarterly production estimated for DigiVal Plus increased more than quantity demanded for the quarter and production estimate for DigiVal is lesser than the estimated quantity demanded. The Tax refunds were to increase in incomes, which reduced consumers to buy products like computers. DigiVal is similar to "inferior good", as incomes increase, the demand for DigiVal decreases because consumers