Automotive Production Levels - Research Paper Example

The quantity demanded for Toyota’s automobiles depends firstly on the price, but also on the consumer preferences, prices of other automobiles’ manufacturers, and income (Gravelle & Rees, 2004). As it can be seen from the graph, where the relation between quantity demanded and price is represented, a higher price tends to reduce the quantity people demand, whereas a lower price tends to increase it. In what concerns the quantity produced, it is a function of the price, factors of production, e.g., capital, labor, technology, and number of competitors (Gravelle & Rees, 2004).

As the graph presents, there is a direct relation between price and quantity produced so a higher price tends to increase the quantity produced, whereas a lower price tends to decrease it. The equilibrium price and quantity occurs when the quantity demanded and the quantity supplied are equal. On the graph, it is the point of intersection of Qd (quantity demanded) and Qs (quantity supplied). Solving the two equations for Qd and Qs we obtain the following equilibrium point: The equilibrium point is above the current production level and price charged by the company, which are Q= 2236162 units and P=2.

43 million yen. Taking into consideration that the level of production has increased compared with the quarter of the previous year (as shown in Fig. 2), the management of Toyota should continue this trend of increasing the number of units produced in order to arrive at the equilibrium point. As it can be seen, this coefficient is higher than one so it can be said that demand for Toyota’s vehicles is elastic. Taking this into account, management of the company should analyze many factors before considering increasing the price of its products because the demand for the automobiles is very sensitive to price changes.

Let us assume that the elasticity of demand calculated above