Scenario Analysis Report
Ideally, price is one important factor to determine that Will’s plans are successful enough, upon combating on some of the issues raised in transforming books digitally and the other way around. The effect of revenue where there is price changed can bring positive as well as negative remarks on Will’s business as customer’s behavior are changing but, they will patronize low price services rather than choosing great value. The revenue of Will Bury can center on the upside motion if more demands from readers and customers are seen for instance from the price of per title, now the potential price will be per title which will affect the revenue if there is short demand and more supply to offer thus, affecting pure gains of profit. The impeding effect of the revenue linking to law of diminishing returns (McConnell and Brue, 2004 p. 6-8), there can also be a downside motion for revenue if not well supported by demand elasticity as well as of price as the revenue makes up the prime part of Will plan as there yields through money, which Will might gain through selling his services in certain year.
Thus, Will may influence the volume of sale, but to large extent it is limited by some of production capacity and demand. Prices are outcome of the moving of demand and supply and are affected by structure of business; Will Bury can influence them only to some extent, the variety of digitalized book copies and other goods lies in Will’s hand so, the revenue may be affected by demand optimization. There is effect if the raise of revenue does increase volume of sales and prices, improving technical and customer service. Indeed, it is not common that, the change in price is not attended by demanded quantity changed of Will’s services, the change in price will be followed by no effect on demanded quantity of goods, imposing certain relationship between change in revenue and change in prices of products, increasing the demand, as well as the application of market mix as necessary.
Measuring Demand Elasticity (Arc Method)
The above graph shows an estimated elasticity of demand that can be applied for Will Bury. There has to be demand management from Will allowing him to realize such market condition linking into the price demand elasticity. There allows that the demand can go up to as much as 500 titles over which there is price change of 10 over 15 before concerning another change as there allows the measure of quantity responsiveness from where there is demand to change the price. Aside, the recognizing ratio of such change percentage in quantity of Will’s products into the demand assimilation of price change relating to volume of Will’s sales. The estimation of the demand will be of certain accuracy as the change in the revenue is being known due to price change. Another instance, if the price of Will’s products will be up by 1 % and being of sales result falling from 1.5 % then, price elasticity of demand for the products is approximately -1.5%/1% = -1.5 respectively. Amiably, the graph cannot be used for larger changes as there require more complex modeling than what is being shown in the arc. The estimates can be symmetrical, meaning that the revenue rise from price increase, which are being subject to forecasting error and are dependent on sample data. The estimates are intended to be indicative only and are not of formal grounds.
McConnell, C. and Brue, S. (2004), Economics: Problems, Principles and Policies, 16th edition. The McGraw-Hill Companies, p. 6-8
Credit:ivythesis.typepad.com
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