REVENUE PRICING AND ELASTICITY

If good is elastic, reduce the price to increase revenues

Eg: consider any small restaurant where the prices of individual item of food is low, so low prices indicates the more number of customers. Here price decreases and the quantity demand increases. Hence if prices are reduced volumes are increased. Hence revenue increases

If good is inelastic, increase price to increase revenues.

Eg: consider any 5 star hotel, here the prices are high the quantity demanded is low. Here per unit contribution of customer is important.

-> At some point  of time goods turns elastic to inelastic. Additional customers give no more volume

PRICE MECHANISM :

GOODS MARKET :

When demand of the good increases, if  demand is greater than supply of goods then the shortage occurs. So the price of the goods increases, due to this supply of goods increases and demand decreases until demand and supply of goods becomes equal

Eg : for instance take any festival season, so the demand of goods (clothes, sweets etc) increases. If quantity supply is not increased, even if quantity demand is increased then there is a shortage. So the price of goods goes up. At higher prices customers tend to scale down the celebration. So hence demand and supply becomes equal