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ECO 330 Week 3 Discussion

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ECO 330 Week 3 Discussion

As Big Time Entertainment's CEO, it is essential to understand the impact of the

COVID-19 pandemic on our company. Our company has a price elasticity of demand of 1.6.

Hence, it signifies that an increase in price by 1% lowers the quantity demanded of our

services by 1.6%. Consequently, we can assert that Big Time Entertainment’s price elasticity

is relatively elastic. Relating the changes in demand with an increase in price helps to prove

this elasticity. Therefore, raising the cost by 10% will result in a 16% reduction in the

quantity demanded of our services. The calculations are shown below.

percentage c h ange of quantity demanded

T h e elasticity of demand= (Froeb, 2018)
percentage c h ange∈t h e price of t h e service

Therefore, with a percentage change of 10% in price,

C h ange∈Quantity demanded
1.6= = 1.6 x 10% = 16%
10 %

Since the law of demand states that a price increase reduces the quantity demanded

(Méndez-Carbajo & Asarta, 2017), our services' quantity demanded will fall by 16%. Big

Time Entertainment will pay for the largest share of the cost increase, and the demand

reduction will prompt the company to spend more to sustain its production. A fall in quantity

demanded will reduce our revenue, eventually reducing the company's profits (Samuelson et

al., 2021). I support the post by Musa Aqeel since it applies the same concept to All America

Grocery Inc. According to the post, the company has a price elasticity of 0.2. Therefore, a

10% rise in cost will lead to a 2% fall in the quantity of food demanded in the company.

However, since food is a basic need, Musa claims that people will still purchase groceries

despite the change in prices, which will make them account for the larger cost. Conclusively,

since the change in quantity demanded is adequate to change the price of services at Big

Time Entertainment, our price elasticity of demand is relatively elastic.

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References

Froeb, L. M., 2018. Managerial Economics: A Problem-Solving Approach (5th ed.). p. 72

Cengage.

Méndez-Carbajo, D., & Asarta, C. J. (2017). Using FRED data to teach price elasticity of

demand. The Journal of Economic Education, 48(3), 176-185.

https://doi.org/10.1080/00220485.2017.1320607

Samuelson, W. F., Marks, S. G., & Zagorsky, J. L. (2021). Managerial economics. John

Wiley & Sons.