The Profitable Strategy of Rental Car Simulation Game
How can profits increase in a rental car simulation game when prices are raised into the elastic range?
1. Elasticity of demand: What does it measure?
2. Why do revenues decrease when prices are raised into the elastic range?
3. How can a decrease in costs contribute to an increase in profit margin?
4. Why is market positioning important in determining the optimal pricing strategy?
Answers:
1. Elasticity of demand measures the responsiveness of demand to changes in price.
2. Revenues decrease when prices are raised into the elastic range because the decrease in quantity demanded outweighs the increase in price.
3. A decrease in costs can contribute to an increase in profit margin by reducing expenses and increasing the profit per rental.
4. Market positioning is important in determining the optimal pricing strategy as it affects customers' perception and willingness to pay.
In the rental car simulation, profits can increase when prices are raised into the elastic range due to various factors. Elasticity of demand plays a crucial role in understanding how customers respond to price changes. When demand is elastic (absolute value of elasticity > 1.0), a price increase leads to a proportionally larger decrease in quantity demanded.
When prices are raised into the elastic range, revenues may decrease as the decrease in quantity demanded offsets the price increase. However, this decrease in demand can also lead to a decrease in costs for the rental car company. With fewer customers, expenses related to car maintenance, fuel, and staff may decrease, contributing to a higher profit margin per rental.
Market positioning is essential in determining the optimal pricing strategy because it influences customers' perceptions of the rental car company. If the company is positioned as a premium service provider, raising prices may attract customers who value quality and are willing to pay more. Analyzing the elasticity of demand, costs, and market positioning helps in maximizing profits in the rental car simulation game.