Advertising elasticity suggests that an increase in

Published by admin on

Advertising elasticity of demand relates to the performance measurement of increase in consumption of advertising in increasing demand of a product. According to Managerial Economics,” by Arun Kumar and Rachana Sharma, advertising elasticity is a measure of an advertising campaign’s strengths in producing new sales. Below shows a diagram of how advertising elasticity of demand is calculated. A positive advertising elasticity suggests that an increase in advertisements and marketing points in the direction to higher demand for the service or goods.  Benefits of advertisements on the elasticity of demandAdvertisements can easily benefit the elasticity of demand as it assists in identifying the strengths and weaknesses of a campaign. For example, if a consumer has little knowledge of a product,and therefore has no interest in purchasing it, they may see advertisements on the said product perhaps on a television commercial, or in a newspaper. If this advertisement is done correctly, the consumer may experience a change in taste and the outcome of this is an increase in demand. In relation to how short run profits and long run profits rare related to advertising, In the short run, the impact advertising has on firms can affect both supply and demand curves. According to Kyle Bagwell 2001,author of the book The economics of advertising, higher spendings on research developments correlates with increased demand for products or services. Costs that vary with the level of output may increase which in return will place significant pressure on companies and their supply curves.   In the long run, Market advertising assists in creating barriers to entry for new corporations to enter into the market. Markets where new entrees have to successfully build a brand identity for themself in order to compete with competitors, the new company will need to conquer the prices of gaining an impressive brand perception within a short duration.  2) Profits are maximised when marginal revenue and marginal cost are the same.Profit maximization is a process which many corporations use to figure out the best output and price levels in order to maximize its return. The company often modifies significant factors such as production costs, sale prices, and output levels as a way of achieving its income goal. There are two main profit maximization methods used, known as the marginal Cost-Marginal Revenue Method and Total Cost-total Revenue.Total revenue equals price times quantity. It reflects total receipts achieved due to selling a particular output or quantity of goods. Under the total revenue-total cost method, when a corporation chooses an output level,the total revenue is set, becaas now it is aware of the highest price it can charge per item.An example of total cost- total revenue would be if a company invents 100 amounts of a product and makes the selling price of £50 per product, the total revenue would be 100 * £50 = £5,000. This would be portrayed as a curve on a graph.Profit is equal to total revenue minus total cost, therefore the profit maximizing output level has the largest distance between the total revenue and total cost. As a result of this the curve of the total revenue line is duplicate to the angle of the total cost curve. Furthermore, as the price stays consistent at each portion, the total revenue line is straight with a slope equalling to the price of the product.  Marginal revenue and marginal cost can be determined with mathematics. This is due to the fact that marginal revenue is the change in total revenue that takes place when further unit of output is produced and sold, marginal revenue is the subordinate of total revenue taken.Similarly, marginal cost is the adjustment in total cost that occurs when one additional unit of a good is produced, therefore being the imitative of total cost seized with consideration of quantity. The profit maximizing number of output can be decided by placing the two cognates equal to each other.    3a)There are four types of market structures, according to sloman et al 2016, each holding individual beliefs which impacts a firm’s decisions and the profits they can achieve. Perfect competition is a theoretical market structure whereby there are many firms which all produce indistinguishable products and all corporations are price takers. Due to the lack of barriers to entry, existing firms have no capability of acquiring any monopoly power. Furthermore,perfect knowledge of price and quality concludes that they are not required to invest in advertising, which works out as financially beneficial for the company. Equilibrium in the short run of perfect competition; firms can make economical profits or losses.        In the long run however, profit gained by the firm in the short run acts as motivational for new firms entering the market, causing an outward shift in market supply, pressuring the ruling market price to decline.         Moving onto monopolistic competition, this refers to the market structure where a large amount of small firms compete against one another, however each firm produces a differentiated product, having control over its price. The demand curve is elastic as although the firms are selling differentiated products, many are still close substitutes, so if one firm raises its price too high, many of its customers will switch to products made by other firms.This market structure lives on the assumption that all firms maximise profits, free exit and entry to the market is granted and consumers may favour a product over another. An example of this is the crisps market.Many brands exist such as Walkers, Quavers and hoola hoops to name a few. Whilst they taste different, they are all crisps. Oligopoly is a market structure where there are small enough firms to allow barriers to be erected against new firm entries. The oligopolistic market structure goes by the expectations that all firms maximise profits, freedom of entry is restricted, oligopolies may set a price and merchandise are differentiated or homogeneous.Examples of oligopoly are cars, electrical appliances and supermarkets. Lastly, Monopoly is a market structure where there is only one firm in the industry. In this circumstance, monopolists earn much higher profit a they reduce output to increase prices. This is because consumers have no access to alternatives. The monopoly market structure builds on the assumptions that the monopolist maximises earnings, the nature of the product is unique, the freedom of entry to the market is restricted or blocked  and it can set the price. An excellent example of a monopoly market would be prescription drugs..     3b)         The structure of the advertising industry is made up of the advertisers, advertising and promotion agencies,The role of the advertisers is to describe the value that the firm’s brand provides. The advertiserAdvertisers explains the brand’s position in the market and the firm’s objectives The target markets are then identified whom are most likely to respond favorable to the brand. The role of the advertiser is also to be committed to using appropriate advertising & other promotional mechanisms in order to advance the brand. Agency There are two types of agencies; the advertising agency and the promotion agency. The advertising agency are interactive, consisting of media specialists who take the role of direct marketing business of selling products or services directly to the public which can vary from mail order or selling over the telephone, rather than through actual retailers. The promotion agencies take part in Direct Marketing, e-commerce, sales promotions, event planning and lastly public relations firms.  External Facilitators These are organizations or individuals that accommodate specially designed services to advertisers and agencies. They focus on surveys to form an understanding of a market, or how effective a promotional program was.• Marketing and Advertising Research Firms• Consultants• Production Facilitators• Software Firms

Categories: E-Commerce


I'm Iren!

Would you like to get a custom essay? How about receiving a customized one?

Check it out