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1. To increase the Total revenue what should be the pricing strategy of the business?

Answer: It is very important for the company to set the pricing strategy according to the profile
of the company. As a company Nike provides premium products and they are spending a lot of
money in innovation to come up with products which will create huge value for customers. By
keeping that in mind the best pricing strategy for Nike will be value based pricing strategy. The
pricing of shoes will be dependent on how much a customer is willing to pay for the value of the
customer. This will increase the demand for Nike shoes because the price will be established
according to the demand of the customer. As a result, the revenue will also increase.

2. How a consumer will maximize total utility. Construct a data and explain.

Answer: Nike Shoes vs Nike Bags:

1. Total income is 40000 Tk. The price of a pair of Nike shoe is 8000 Tk and the price of a Nike
bag is 4000 Tk. (Official Store. Nike.com, 2019)

Number Total Marginal Utility Total Number Total Marginal Utility

of Pair Utility of buying one Utility of Bags Utility of Of buying two
of of shoes pair of shoe bags bags
Shoes

0 0 0 200 10 200 20

1 80 80 260 8 180 30

3 210 60 320 4 110 50

4 250 40 310 2 60 60

5 280 30 280 0 0 0

From the chart we can see that the highest utility one can get when he/she will buy 3 pair of shoe
and 4 bags by using the 40000 Tk. So, by purchasing 3 pair of shoe and 4 bags one can maximize
the utility. Also from the chart we can say that as we increase purchasing of same product the
marginal utility decreases. It proves that these two products follow the diminishing marginal
utility rule.

3. Predict on the price elasticity of supply for the product and discuss the value.

Answer: Nike shoes are luxury product for people. The consumption of Nike shoes gets effected
massively by the change of price. On the other hand, people can easily switch from one brand to
another brand. Because of that we can say shoes are elastic product from the perspective of the
customer.

To predict on the price elasticity of supply, we need to consider some points. Based on these
points we will determine the result.

i. The number of competitors is very high in shoe industry.

ii. It is not easy to increase the capacity of a shoe factory.
iii. Shoes cannot be stored easily. To store shoes, we need to spend a lot of money and we
also need huge space.
iv. Changing cost of production does not have huge impact on shoe industry.
v. Production of shoes takes a lot time.

Considering all the points we can predict that it is not easy to change the supply of shoes quickly
as price changes. So, we can predict that supply is inelastic.

References:

1. Price Elasticity of Supply. (n.d.). Retrieved April 7, 2019, from

https://courses.lumenlearning.com/boundless-economics/chapter/price-elasticity-of-supply/