Discuss the importance of considering elasticity in pricing decisions and the danger of relying solely on costs.

Unit ii dq mba 6053 | MBA 6053 – Economics for Managers | Columbia Southern University

The importance of considering elasticity in pricing decisions is paramount to any business’s success. Elasticity has the power to reveal how changes in price affect customer demand, profit margins and overall revenues, allowing businesses to make more informed decisions regarding their pricing strategy. It is crucial for businesses to have an understanding of the interplay between changing prices and customer selection behavior as it can help determine a successful pricing structure that maximizes profitability while ensuring customer satisfaction at the same time. Thus, neglecting or overlooking factors such as elasticity when setting prices can lead to considerable financial losses for companies due to missed opportunities or potential drops in demand caused by overpricing products. Additionally, relying solely on costs when determining prices can be problematic since it may lead companies into believing they are being profitable when in fact they could be missing out on other market opportunities where higher profits could be gained through charging a slightly higher rate than what they currently do that would still attract customers’ attention and willingness to purchase the product/service. Therefore, managers should take into account both their costs and elasticity features associated with their product/service before deciding upon a final price point.