00:01
So here we have a business person who is contemplating raising prices due to his cost structure changing, right? the answer is elasticity.
00:12
Why is it elasticity? well, elasticity by definition is how your customers react to a change in price, right? elasticity or price elasticity, at least, is when prices change, how do your customers react? so if cliff understands the price elasticity for his product, he will know how many customers he'll lose, which is kind of important, right? if i was running a business, that's precisely what i would want to know, right? it's going to tell him similarly what's going to happen to his revenue, which is also very important because revenue equals price times quantity.
00:53
He knows what he's contemplating change to the price.
00:56
The changing the price too.
00:58
So he knows the change in price.
01:00
If he knows the elasticity, he'll also know the change in quantity, which means that he knows how price and quantity are changing so he can get the revenue for his business as well.
01:07
Right.
01:08
So this is obviously very important and this is what he needs to know to to gauge the effect of his price change.
01:15
The break even point tells you the quantity at which profit is equal to zero, right? and that's useful.
01:27
The effective price changes doesn't come in here, right? there's nothing about the changing the price will affect the break -even point, but it doesn't tell you how the price change will affect your business, right? there's nothing here about how my customers will react or my total business will do, but, you know, there's something here...