Analysis Of Demand And Price Effect On Firm 's Revenue

1418 words - 6 pages

1. Determinations of a firm's revenueThere are numerous different opinions on identification revenue, thus it is necessary to define this properly. The revenue makes up the prime part of firm 's yields. It is obvious not only in production of goods but also in service sector. They mean money, which the firms gain through selling their goods and services in a particular accounting year. They make up main financial source of the firm, which uses it for paying fees, taxes, costs, and dividends and as an instrument of extended reproduction. Revenues are receipts from selling of produced goods and provided services, purchased goods and stocks, useless assets, patents and licences, etc. The value of particular terms is recorded in profit and loss account. The revenue of produced goods or/and provided services is of great importance. It is determined by the volume of sale, prices of particular products, variety of products, way of invoicing and period of payment and other factors. The firm may influence the volume of sale, but to large extent it is limited by production capacity and demand. Prices are results of interaction of demand and supply. They are affected by a structure of a market, thus the firm can influence them only to some extent. But the variety of goods lies in the firm hand so its revenue may be affected by its optimisation. The way of invoicing is established by the law, thus it cannot by affected by the firm. The firm can raise its revenue by increasing of volume of sale and prices of products, improving their quality and technical level, introducing new goods, improving customer services, introducing more effective advertisement and etc. These factors are subject of marketing policy, but addressing these factors is beyond the scope of this paper. The following analysis will cover these issues:Dependence of revenue on demand - volume of sale and pricesDependence of revenue on price elasticity of demand2. Effect of change in price and volume of sale on change in revenueThe sole formula for calculation of revenue offers two ways of influencing their amount:R =Q.pWhere:R - receipts,,Q -volume of sale,P - price..The influence of these factors will be analysed further in the text.Change in revenue as a result of change in price on the condition ceteris paribusThis case can be supposed as hypothetical. Only rarely the change in price is not attended by the change in demanded quantity of goods. If this were a case, the change in price of a good will be followed by no effect on demanded quantity of goods. This means that there is a linear relationship between change in revenue and change in price of a good.Change in revenue as a result of change in volume of sale on the condition ceteris paribusThis situation can be supposes as realistic. The management of a firm is able do decide on the quantity supplied if the market requires it. Of course, the decision must reflect condition in the relevant market, so that the market could absorb increased...


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