Introduction to Fanta Pineapple
Fanta Pineapple, a refreshing soft drink, has been a staple in grocery stores and convenience shops. However, when faced with a situation where the quantity demanded is 0.3 and the demand is inelastic, how does a pricing strategy affect total revenue? This article delve deep into the intricate relationship between price, demand, and revenue. We will explore how to strategically price Fanta Pineapple to maximize total revenue in a market with inelastic demand.
Understanding Inelastic Demand and its Implications
Definition of Inelastic Demand
Inelastic demand occurs when a change in price leads to a proportionally smaller change in the quantity demanded. In other words, consumers are not significantly influenced by price changes. This is often observed in markets for essential goods or services where consumers continue to purchase at nearly the same levels even if prices rise or fall.
Implications for Fanta Pineapple
Given the inelastic demand for Fanta Pineapple, a 0.3 quantity demanded means that even if the price is increased or decreased, the quantity demanded is unlikely to change significantly. This can be advantageous for businesses as they have more flexibility in pricing without losing a large portion of their customer base.
Price Strategy for Inelastic Demand
Increasing Prices
Given the inelastic demand, increasing prices may lead to a small decrease in quantity demanded, but it can significantly increase total revenue. The formula for total revenue (TR) is:
Total Revenue (TR) Price (P) x Quantity (Q)
With inelastic demand, Price (P) ?P leads to a smaller change in Quantity (Q), leading to an overall increase in Total Revenue (TR).
Example Scenario
Let's assume the current price of Fanta Pineapple is $1.50, and the current quantity demanded is 1000 bottles. The total revenue would be:
1000 bottles × $1.50 $1500
If we increase the price to $1.75 per bottle, the new total revenue, given inelastic demand, might only decrease by a small percentage. Assuming a 3% decrease in quantity demanded (since 0.3 means nearly constant demand), the new quantity demanded would be:
1000 bottles × (1 - 0.03) 970 bottles
The new total revenue would be:
970 bottles × $1.75 ≈ $1702.50
Showcasing that the revenue has increased from $1500 to $1702.50, a 14.2% increase.
Decreasing Prices
While increasing prices is the optimal strategy for revenue with inelastic demand, decreasing prices might not always be the best option. If the demand is inelastic, a price reduction would lead to a proportionally larger decrease in quantity demanded, negatively impacting total revenue:
If the price of Fanta Pineapple is lowered to $1.25, the quantity demanded might increase by a small margin, leading to:
1000 bottles × (1 0.03) 1030 bottles
The new total revenue would be:
1030 bottles × $1.25 ≈ $1287.50
Showcasing a reduction in total revenue from $1500 to $1287.50, a 14.3% decrease.
Strategic Pricing
The key to maximizing total revenue with inelastic demand is to focus on increasing the price as long as the quantity demanded remains relatively stable. This does not mean maximally increasing the price, as there is a limit to how high a price can go before it becomes elastic. The exact price point depends on factors such as competition, quality of the product, and customer perceptions.
Conclusion: Maximizing Total Revenue with Fanta Pineapple
Understanding the concept of inelastic demand and pricing strategy for Fanta Pineapple is crucial for increasing total revenue. By leveraging the inelastic demand, companies can strategically price their products to maximize profitability. In the case of Fanta Pineapple, increasing the price can lead to a significant increase in total revenue, as the quantity demanded is unlikely to drop much.
Keywords: inelastic demand, price strategy, total revenue, Fanta Pineapple