It is ideal first to understand that the demand for a commodity usually depends on the incomes of its daily consumers and its price as well as the price of its competitive products. For instance, if the cost of a phone increases, then the demand quantity will decrease.

Elastic Demand Company

Across the entire globe, Apple company is well known as a premium company in selling smartphones and computers. First, the Apple company is an oligopoly company since many companies produce the same products (computers and smartphones) in the industry like the Apple company (Imbs& Mejean, 2015). However, it is evident to accept that the company competes well and has an excellent market value. Macbook is one of the commodities of the company; it can be noted that an increase in its price has led to a decrease in its quantity demand in the market. This, therefore, implies that the Apple company operates under an elastic demand market.

Also, we know that a profit-maximizing company’s optimal output decision entails placing the quantity in a manner that its marginal revenue and marginal cost are equal. This, therefore, implies that if Apple company’s prices are changed, then its percentage shift in rates will be exceeded by the percentage of the demand quantity (Imbs& Mejean, 2015). Similarly, if the prices of the company are raised from the current amount, then there would be a decrease in the income revenues due to a decline in the quantity that will be demanded. The challenge for the company thus lies in the sense of raising costs and maintaining sales in the market. It is hence ideal for the company to shift to price competition from a non-pricing competition. This will make the company be under a monopolistic competition with unique products in the market as compared to its competitors and thus enlarging their share in the market.

Inelastic Demand Company

For this type of demand, we will look at the General Motors Company (GM). The company manufactures vehicles in about thirty-seven countries across the globe under 13 distinct brands due to its excellent brand loyalty. This, therefore, enables the company to enjoy a cost advantage. The high cost of entry into this business is again an excellent barrier for entry into the industry (Gu, Rasch& Wenzel, 2016). New companies joining the industry face the high entry cost demands that discourage them from entering the industry. Therefore, the GM Company operates in a monopolistic market. This thus implies that even if the prices are increased, the consumers may be forced to use railways as their alternative transport means which indicates that it operates in an inelastic demand.

When determining prices, elasticity is very vital. It is, therefore, essential to consider high mark up against cost where quantity demand is inelastic under a monopolistic market since its a single company producing products in the whole market (Gu, Rasch& Wenzel, 2016). Given that the company is the sole producer, it owns the market power for influencing the prices in the market. The behavior of maximizing profits under a monopolistic business is; (Profit = Total Revenue – Total Cost).

Under inelastic demand, an increase in prices will yield an increase in total revenue, and there will be a reduction in the quantities sold, i.e. cost reduction. When inelastic demand is very high, customers become insensitive to prices. Therefore, service, quality, location and the mix of the product are the significant aspects to the company’s strategies of pricing.

References

Imbs, J., & Mejean, I. (2015). Elasticity optimism. American Economic Journal: Macroeconomics, 7(3), 43-83.

Gu, Y., Rasch, A., & Wenzel, T. (2016). Price‐sensitive demand and market entry. Papers in Regional Science, 95(4), 865-875.

 
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