The input of Elasticity in Decision Making The concept of price elasticity of demand has important practical applications in managerial decision-making. Uses of price elasticity can be pointed out as below: Price fixation Price discrimination Public utility pricing etc....

1. Using Elasticity in Managerial Decision Making
Unit 19
Instructor:
Atta Hussain Syed

2. Using Elasticity in Managerial Decision Making
• The concept of price elasticity of demand has important
practical applications in managerial decision-making.
• Uses of price elasticity can be point out as below:

3. 1. Price fixation:
• Each seller under monopoly and imperfect competition has
to take into account the elasticity of demand while fixing
their price.
• If the demand for the product is inelastic, he can fix a
higher price .
Using Elasticity in Managerial Decision Making

4. 2. Price discrimination:
• A monopolist adopts a price discrimination policy only
when the elasticity of demand of different consumers or
sub-markets is different.
• Consumers whose demand is inelastic can be charged a
higher price than those with more elastic demand.
Using Elasticity in Managerial Decision Making

5. 3. Public utility pricing:
• In case of public utilities which are run as monopoly
undertakings e.g. elasticity of water supply railways postal
services, price discrimination is generally practiced,
charging higher prices from consumers or users with
inelastic demand and lower prices in case of elastic
demand.
Using Elasticity in Managerial Decision Making

6. 4. Super Markets:
• Super-markets are a combined set of shops run by a
single organization selling a wide range of goods.
• They are supposed to sell commodities at lower prices
than charged by shopkeepers in the bazaar.
• Hence, price policy adopted is to charge slightly lower
price for goods with elastic demand.
Using Elasticity in Managerial Decision Making

7. 5.Shifting of tax burden:
• It is possible for a business to shift a commodity tax in
case of inelastic demand to his customers.
• But if the demand is elastic, he will have to bear the tax
burden himself, otherwise demand for his goods will go
down sharply.
Using Elasticity in Managerial Decision Making

8. 6.Production:
• Producers generally decide their production level on the
basis of demand for their product.
• Hence elasticity of demand helps to fix the level of output.
Using Elasticity in Managerial Decision Making