Assume that you are a marketing manager for a supermarket. The accounts department provides you with different price elasticites for a variety of goods. Some products (e.g. confectionaries & cosmetics) are relatively price-elastic; other products (e.g. bread, milk & greengroceries) are relatively price-inelastic.
Write a brief report (two or three paragraphs) explaining how your marketing strategies will respond to this information. Your discussion should apply the following concepts to the problem, together with any other elements of microeconomic theory or concepts that you consider relevant.
• The relationship between revenue and price elasticity;
• The relationship between PCM [Percentage contribution margin] and price elasticity; and importantly,
• How different pricing strategies are used to capture consumer surplus.