Final answer:
For elastic demand (1.4), lower the price; for inelastic demand (0.6), increase the price; for unitary elasticity (1), maintain the price. Gasoline elasticity of supply is important for UPS or FedEx to manage fuel costs. Bread demonstrates negative income elasticity, indicating it is an inferior good as consumption decreases with rising income.
Step-by-step explanation:
Understanding Elasticity in Business Decisions
If a pharmaceutical company's product has an elasticity of demand of 1.4 at current prices, I would advise the company to lower the price. This is because the demand is elastic, and a decrease in price will lead to a proportionally greater increase in quantity demanded, thus increasing total revenue. Conversely, if the elasticity were 0.6, demand would be inelastic, and it would be advisable to raise the price since the decrease in quantity demanded would not be as significant as the increase in price, still leading to higher revenue. If the elasticity were exactly 1, which is unitary elasticity, the current price is already optimizing revenue, and no price change is necessary.
For companies like UPS or FedEx, understanding the gasoline price elasticity of supply is crucial as it affects fuel costs, which are significant for their operations. This elasticity measures the responsiveness of quantity supplied to a change in gasoline prices. Higher elasticity would mean that suppliers can quickly adapt to price changes, which is beneficial for couriers in terms of managing fuel costs.
Determining the income elasticity of bread can be done by calculating the percentage change in quantity demanded over the percentage change in income. Based on the given data, we observe a decrease in quantity demanded as income increases, which suggests that bread is an inferior good with negative income elasticity. People tend to buy less bread as their income rises, possibly opting for higher-quality or more expensive substitutes.