January 11th, 2016
M De Point
Thomas Money Service Inc. started as a consumer finance company and it branched out into equipment financing using a subsidiary named Future Growth Inc. (FGI). For 67 years, FGI increased its profits year after year, even during economic downturn. With the recent economy downturn along with flooding, massive fires and animal activist’s protests, FGI finally received its first profits decline of roughly 30%. The current outlook for FGI is not looking bright and so the subsidiary is looking for a business proposal to help increase their profits.
Future Growth Inc. currently operates in an oligopoly market. Within this oligopoly market, there are several domestic and international companies that manufacture construction and forestry equipment. With all of these competing companies, only a few of them own the majority of the market share. With that being said, each company’s equipment offers a slight variation of product features and functionality. Having product variations allows the market to choose specific equipment that meets their needs. FGI will need to conduct market research to determine what the consumers are looking for so that it can modify their equipment to meet their needs (McConnell, Brue, & Flynn, 2009).
Based on the demand figures below (Figure 1), FGI’s products show an elastic behavior. It is elastic because “when price changes, total revenue will change in the opposite direction if demand is price-elastic” (McConnell, Brue, & Flynn, 2009). In other words, FGI’s customers are very responsive to price changes. The demand increases each time the price drops but the demand takes a significant jump when the price drops to $1,634.3. With this boost in demand, the recommend price for FGI would be $1,634.3, especially since it produces the highest total revenue numbers.