Kodak Case

Although the initial cost of digital imaging equipment is comparable to or only slightly higher than professional 35-mm film photography equipment, the cost savings prove significant over time. “In the professional light or producer/consumer class of digital cameras, many models currently sell for less than $1250” (Bhatia). Overall cost savings result from a few differences between digital imaging and traditional film photography. First, in digital imaging, no film is purchased. An individual may keep images in removable storage media, also known as memory cards. After images are taken, they are transferred from the memory card to a computer, and the memory card is erased for reuse. This process can be repeated over and over. In addition, a person has the ability to erase inadequate images from the memory card while still in the camera. This flexibility allows the user to retake as many images as desired because reviewing or deleting images has no cost factor.

Memory card prices range from $20 to $90 depending on storage capacity. With these reasonable costs, demand for digital camera memory cards continues to increase, according to the law of demand ceteris paribus. Considering the average price of a 256MB memory card is $50, what will happen if Kodak reduces prices further? How will this affect revenue? The answer depends heavily upon the price elasticity of the memory cards because price elasticity and total revenue provide close links with one another. Consider the following hypothetical example. Customers currently buy one 256MB memory card from Kodak at the price of $50.