Sunday, October 17, 2010

Summarize section 2.3.2 including the influence chart

In section 2.3.2 we take the previous example and expand upon a couple of the end variables -- Quantity Sold & Total Revenue.  In our expanded influence chart, we include the decision of how much we would price a unit.  As we lower the price we will sell more units, which will affect our Total Revenue.  If the lowered cost is less than the increased sales then we will see greater Total Revenue.  If, on the other hand, we lower the cost and sales don't makeup for the lower sales, then we'll reduce our Total Revenue.  As this issue shows, price will affect both Quantity Sold and Total Revenue.

We also include Elasticity.  Elasticity is the third factor noticed above.  We need to reduce the price per unit enough to maximize profit, which is the elasticity.

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