The Impact of Elasticity on the Firm’s Revenue
Senthilnathan, S. (2016). International Journal of Science nd Research, Vol. 5, No. 9, pp. 1728-1731, ISSN: 2319-7064.
11 Pages Posted: 29 Apr 2016 Last revised: 7 Oct 2016
Date Written: April 27, 2016
The elasticity is an important measure impacting on a form’s revenue. Hence, it is important for a firm to know how the proposed change in price of its product can affect its total revenue, when the product is to be sold in the new market condition at the new price. In this context, the measure of elasticity indirectly reflects how the buyers will react to the change in price and the new price to come. This implies that the elasticity of the product becomes a crucial measure to reflect what the percentage of income the firm can gain or lose, when the price change takes place for its respective product. This paper demonstrates in a new mathematically constructive approach as consistent with the existing accepted phenomena of elasticity that elastic product shows negative relationship between price change and change in total revenue; inelastic product can result in positive relationship between price change and change in total revenue; and unit elasticity product has no impact on change in total revenue as the response to a price change. Indicatively, this paper explores three constructive, but similar and alternative, mathematical methods for the existing phenomena how the percentage of change in total revenue can be determined with respect to elasticity, and current and new prices and their respective quantities.
Keywords: elasticity, demand, supply, quantity, market, revenue
JEL Classification: A1, A2, A22, A23, A29, B21, D4, D41, D42
Suggested Citation: Suggested Citation