Question Three_WK2.docx - Question Three Briefly explain whether you agree or disagree with manager 2\u2019s reasoning Manager 1 \u201cThe only way we can

Question Three_WK2.docx - Question Three Briefly explain...

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Question Three Briefly explain whether you agree or disagree with manager 2’s reasoning: Manager 1: “The only way we can increase the revenue we receive from selling our frozen pizzas is by cutting the price.” Manager 2: “Cutting the price of a product never increases the amount of revenue you receive. If we want to increase revenue, we have to increase price” Answer: Increasing the revenue by increasing or decreasing the price of a product depends largely on the elasticity of demand for that product. Price elasticity is based on several key determinants such as availability of substitutes, passage of time, luxury or necessity, definition of market, and share of the good in the consumer’s budget. Availability of close substitutes This is the most important determinant when considering lowering a price. The manager will want to look at any available substitutes to the product in which they are considering. In this case, there are several options available for frozen pizza so the product will have a more elastic demand.
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