Automotive production levels - Research Paper Example

Details Quarter ending 31st August 2012 Quarter ending 31st August 2011 1 Production levels 9.026 million Units 8.385 million Units 2 Inventory levels $ 14.32 billions $ 12.13 billions 3 Operational costs $ 144.62 billions $ 130.50 million 4 Sales $ 150.30 billions $ 135.40 billions 5 Price $ 16,650.00 $ 16,150.00 1. Demand -supply analysis Price $ 5,000 $ 10,000 $ 15,000 $ 20,000 Units sold 15,000 12,000 10,000 8,000 The above table shows different units that customers are wishing to buy at different prices.

Given a price of $5,000, customers are willing to purchase 15,000 units, and this number reduces to 8,000 units given a price of $ 20,000. Graphical representation Price 20,000 f a? g ?e 15,000 ? Equilibrium point (e0) 10,000 h ? ? 5,000 c ? ?b j k 0 5,000 10,000 15,000 20,000 Quantity demanded The above graph slants downwards from left to right. Notably, as price reduces, quantity of automobiles demanded increases and it turns the vice versa when the price increases. 2. Equilibrium price and quantity The point (e0) gives the equilibrium price of $ 12,250 and quantity $ 12,000 units.

This point represents the favorable price that the buyers are willing to pay for a certain car model they buy from the company. Any point above the equilibrium price represents a higher price with corresponding lower quantities of automobiles sold. On the other hand, any point below the equilibrium point represents a lower price at which the buyers would buy more of automobiles. According to the data collected for General Motors, the above graph shows that the company is selling at high prices, which results to reduced quantity demanded.

The company is offering its automobiles at an average price of $ 16,550, whereby 9.026 million units are sold. To maximize the number of units sold, the management should consider lowering the price in response to the market forces of demand and supply, up to $ 12,250 in order to achieve equilibrium. At this point, the quantity demanded will increase by 2.974 million units. This action will make General Motors automobiles cheaper than those of the competitors, thereby increasing their demand.

Interestingly, the demand will continue to grow and will eventually lead to increased production that will enable the company to enjoy increased economies of scale from the suppliers of raw materials (Arribas et al., 2009). Since General Motors is a global company, the increased demand will cause internal advantages to the firm, as well as result to the establishment of additional subsidiaries across the globe. 3. Price Elasticity of Demand Price elasticity of demand refers to change in quantity demanded as a result of significant change in price.

To derive price elasticity of demand, the following formula is used: Price elasticity of demand = (Q1-Q2)/ (Q1+Q2) (P1-P2)/ (P1+P2) The demand is said to be elastic if the price elasticity is greater than 1. This implies that the quantity demanded changes faster than the price. On the other hand, if the price elasticity of demand is lesser than one, the price elasticity is said to be inelastic implying that the quantity demanded changes slower than the price. Lastly, if price elasticity arrived at is equal to one, then this is referred to unitary condition, which shows that quantity demanded and price changes at the same rate (Freeman, 1977).

Computation of price elasticity of demand for GM P1- $ 12,250 P2- $ 16,650 Q1- $ 12,000 Q2- $ 9,026 Therefore, Price elasticity