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Summary MBA 6053 Unit II Essay .docx MBA 6053 Unit II Elasticity MBA 6053 Columbia Southern University Elastic Demand vs Inelastic Demand According to Byrne, Nauze, and Martin (2021), œthe price elasticity of demand for elasticity is a key parameter
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MBA 6053 Unit II Essay .docx MBA 6053 Unit II Elasticity MBA 6053 Columbia Southern University Elastic Demand vs Inelastic Demand According to Byrne, Nauze, and Martin (2021), œthe price elasticity of demand for elasticity is a key parameter for analyzing the costs of climate change m...
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MBA 6053
Unit II Elasticity
MBA 6053
Columbia Southern University
Elastic Demand vs Inelastic Demand
According to Byrne, Nauze, and Martin (2021), “the price elasticity of demand for
elasticity is a key parameter for analyzing the costs of climate change mitigation, the incidence
of carbon pricing, market power, and elasticity market design”. Price elasticity of demand is a
key factor when considering for a substitution. If customers could easily find another product or
service when a business increases its price, the demand is more elastic. If there are only a few
substitutions, demand will be less elastic. It is considered to be inelastic when demand for any
products or services is steady even if the price fluctuates. Additionally, necessity plays a vital
role regardless of the price and when determining elastic demand or inelastic demand.
One product that is highly in demand nowadays is COVID 19 vaccines. Since the
pandemic was announced in March 2020, COVID 19 vaccines have become one of the most
sought out products in the world. As a few vaccines were approved by the FDA (Food and Drug
Administration), the companies such as Moderna, Pfizer, or AstraZeneca have produced the
vaccine at their maximum capacity to meet the demand of the population of the whole world.
Each company has set a competitive price to export their vaccines and has actively conducted
their market research to adjust their price and possible ways to secure more contracts. However,
as FDA has approved more vaccines and due to the increased numbers of vaccinated population,
it will eventually cause a reduction in the market price or reduction in the production of vaccines.
Marginal Analysis, Sunk Costs and Better Pricing Decisions
The marginal analysis compares the additional benefits derived from activities and the
, additional expenses created by the same activities. The marginal analysis can deliver a decision-
making tool to maximize the potential revenues by comparing the costs and benefits of activities.
The marginal analysis could be used to make any decisions, such as upgrading the product,
reallocating the budget for new hiring, managing the size of staff, or remodel the current
workspaces. Additionally, the marginal analysis identifies and assist to determine the better
pricing decision by avoiding sunken costs. When making pricing decisions, sunk costs must be
avoided at all cost because the sunk costs are the investment that is paid in the past which could
not be recovered. If a business is tied up with the previous investment and makes decisions
based on their investment in the past, it may lead to the sunk-cost fallacy. A business must only
consider the future investments which may contribute to the success.
Dijkstra and Hong (2019) described that the sunk-cost fallacy is driven by adverse
feelings caused by the expectation of investment without success, although there is new evidence
showing that the future investment of continuing the behavior may exceed the expected revenue.
Therefore, it is important to overlook the sunk cost when making pricing decisions because the
sunk cost could negatively influence the pricing decision-making process and impact the overall
success of a business. For example, you have developed software and you have been negotiating
with a company for a contract for the past three months. You have worked countless hours and
modified the software to meet the demand of the company. However, a week before the final
meeting with the company, another company reached out and offered you a contract with far
better conditions comparing the first company. Would you deny the contract because of the time
you have invested to seal the deal with the first company? You should seal the deal with the
second company because it clearly indicates that the second company could offer you a better
deal and could place your company in a better position in the future. The investment of time you
put in the past is no longer relevant in this case
Importance of Opportunity Costs to Decesion-Making
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