Final answer:
The right pricing strategy is dependent on the elasticity of demand for the product. For elastic demand, lowering the price increases total revenue; for inelastic demand, raising the price does so. Gasoline elasticity of supply affects shipping companies' costs, and the income elasticity of bread indicates it is an inferior good.
Step-by-step explanation:
When determining whether to raise the price, lower the price, or keep the price the same for a pharmaceutical product, the elasticity of demand plays a crucial role. If the demand elasticity is 1.4, lowering the price is advisable as demand is elastic; consumers are highly responsive to price changes, and a lower price would likely increase quantity demanded sufficiently to raise total revenue. Conversely, if the elasticity of demand falls to 0.6, raising the price is a better strategy since demand is inelastic; consumers are less responsive to price changes, so a higher price would likely generate more revenue despite a smaller decrease in quantity demanded. When the elasticity of demand equals 1, changing the price would not affect total revenue since the percentage change in quantity demanded would be proportional to the percentage change in price.
For a company like UPS or FedEx, the gasoline price elasticity of supply indicates how sensitive the supply of gasoline is to price changes. High elasticity would benefit delivery companies as a decrease in gasoline prices would lead to an increase in supply, potentially decreasing operating costs. Low elasticity would mean less responsiveness to price changes, posing a challenge to managing fuel-related expenses.
The calculation of the income elasticity of bread consumption involves comparing the percentage change in quantity demanded to the percentage change in income. With the given data, the computed income elasticity would show that bread is an inferior good, as consumption decreases when income increases, suggesting that people opt for other goods as they become wealthier.