Benefits of Economic Concentrations

Assume that you are a product manager, and the demand for your product is inelastic. What should you do to enhance the revenue for your company: Decrease the price or increase the price? Why?Initial ResponseThanks for your initial response to the Week 2 Discussion Question. You correctly highlighted the economic concentration in your post through the case of the 1956 Federal-Aid Highway Act. You also presented the risks and benefits of economic concentrations.Regardless of economic concentration in a market, whether the market structure is a monopoly or very competitive, setting the right price is crucial for managers. Cost of production and shift factors of demand and supply are essential tools to use for this important task. Another fundamental tool for managers is the price elasticity of demand.The price elasticity of demand informs managers what will happen to the quantity demanded for their product when they change their product price. Knowing the demand elasticity tells managers and business owners how their total revenue will change if their price changes.As a general rule, the more substitutes a good or service has, the more elastic is its supply and demand. That means that more competition keeps prices stable. A firm will not increase its price, if its competitors keep their prices at the same level. Otherwise, that firm would lose its customers to the competition.Thanks to the income effect (we, consumers, have limited financial resources) and the substitution effect (we, consumers, can find and buy the substitute product), competition makes economies stronger.

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