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Assignment 1

Regulus Solar Power Inc. faced revenue challenges in 2018 due to increased competition and lower solar panel prices, prompting plans to lower prices and adopt a one-day installation process. The analysis of price demand elasticities revealed that revenue increases as prices decrease, with a recommended price point of $12000 for maximum revenue. The demand equation derived from the data is Q = 1500 – 0.08(p), indicating that at lower price points, demand becomes relatively inelastic.

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16 views2 pages

Assignment 1

Regulus Solar Power Inc. faced revenue challenges in 2018 due to increased competition and lower solar panel prices, prompting plans to lower prices and adopt a one-day installation process. The analysis of price demand elasticities revealed that revenue increases as prices decrease, with a recommended price point of $12000 for maximum revenue. The demand equation derived from the data is Q = 1500 – 0.08(p), indicating that at lower price points, demand becomes relatively inelastic.

Uploaded by

merlin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ASSIGNMENT 1

PRICE DEMAND ELASTICIRIES

NAME: VIGNESH P
MAIN ID: [email protected]
MOBILE NO: 7397242193

INTRODUCTION:

Name Of the company: Regulus Solar Power Inc.

a regional player in the solar panel installation market, faced revenue challenges in 2018
due to increased competition and lower solar panel prices. During a board meeting in
November 2018, the CEO highlighted those revenues had only increased by 2% from the
previous year. The largest US solar installer had entered the Southwestern market with a
one-day installation process, giving them a competitive edge. To remain competitive, RSP
planned to lower prices and adopt the one-day installation process. The solar power market,
driven by environmental concerns, government incentives, and utility power buyback
schemes, saw significant growth. Installation costs decreased by nearly 70% from 2010 to
2018, making solar power more affordable. Despite the growing interest in solar power,
RSP's revenues had stagnated. To stay competitive, RSP aimed to improve its environmental
image and reduce costs by adopting more efficient installation procedures.

Given:

Price = $15000, $13500, $ 12000


Quantity = 300, 420, 540

Find:

Price Demand Elasticities, Impact on Revenue, Changes in demand elasticity as


price is reduced, Demand equation based on the given graph, Recommended price
point

Solution:

Price elasticity of demand = Percentage change in demand / Percentage change in


Price
Before finding price elasticity we need to find demand equation

Linear regression equation

Q = a + b(p) (1)

Q = 300
P = 15000
b = 1/Slope (Slope = change in price / change in quantity demand)
a=?
b = 1/(15000-13500)/(300-420)
= 1/1500/-120 = 1/-12.5
b = - 0.08 Page 1
Substitute in (1)

300 = a + (-0.08(15000))

300 = a – 1200

a = 300 + 1200

a = 1500

Demand Curve Equation Will Be:

Q = 1500 – 0.08(p)

Price
Quantity (Q)
Price (p) Revenue ($) elasticity of Type of Elasticity
Q = 1500 – 0.08(p)
demand
16500 180 2970000
15000 300 4500000 4.000 Relatively Elastic
13500 420 5670000 2.571 Relatively Elastic
12000 540 6480000 1.778 Relatively Elastic
10500 660 6930000 1.273 Relatively Elastic
9000 780 7020000 0.923 Relatively Inelastic
7500 900 6750000 0.667 Relatively Inelastic
6000 1020 6120000 0.471 Relatively Inelastic

Table (1)

1. The price demand elasticity for a change in price from $15000 to $13500 is 4.00
price from $13500 to $12000 is 2.57 for a typical solar panel installation Table (1)

2. The revenue increases as the price decreases due to the rise in quantity demanded.
Between these $15000 to $13500 & $13500 to $12000 price points the new price
point may be $12000 to get maximum revenue with the calculation mentioned in
Table (1)

3. When the Price id reduced @ price point of $9000 the demand elasticity changes
relatively inelastic that means Large change in price cause small change in quantity
demanded. Table (1)

4. Based on the calculation with the graph given in this case DEMAND EQUATION

Q = 1500 – 0.08(p) Calculation mentioned in 1st page

5. With the reference of Table (1) At the price point between $10500 to $9000 the
revenue of the Regulus Solar Power Inc. reaches its maximum I recommend to fix
price between these price points

Page 2

___________________END__________________

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