Essential Lines Of Analysis

Question 1

Price elasticity of demand

Answer 1

If there are increased substitutes

It Becomes more price elastic

Customers are less loyal to the brand

Therefore, cannot increase price as it will lead to significant fall in demand

There is pressure to keep prices low

Leaving to a lower sales revenue

Lower gross profit

Lower operating profit

Lower retained profit

Leading to reduced total equity

Question 2

Price inelastic

Answer 2

Positive publicity means a business develops, a strong brand image

This will differentiate from its competitors

Consumers are more loyal to the brand

Therefore can charge higher prices for their products without demand falling significantly

This leads to increased sales revenue

This leads to increase gross profit

Increase operating profit

Increased retained profit

Increased total equity