Understanding Price Elasticity & Demand Change: A Case Study

1) If the Price Elasticity of Demand for a product is -.8, and the product currently sells for $100 per unit, how much will demand for the product decrease (expressed as a percentage) if the price is increased to $110 per unit?

 

2) Which is an advantage to being the first company to move into a market segment?

First-movers can avoid free-riding competitors who try to benefit from their pioneering investment.

First-movers are guaranteed huge profit margins and a monopoly-like status.

The first entrant can gain a position with customers that followers may not be able to match.

The first entrant does not have to spend money on marketing or advertising since there is no competition in the new market sector.

 
3) You are working on your sales forecast for a certain product. Over the past three years, the total unit demand for this product has increased at a steady rate. Three years ago, the overall demand in the market was 100,000 units. Two years ago, the demand was 104,500. Last year, the demand was 109,200. Based on your pricing, advertising, and sales support relative to your competitors, you expect to earn 32 percent market share this year. About how many units of this product do you expect to sell this year?

 

4) What is the main theme underlying all suggestions on ways to avoid group decision making errors such as groupthink and the common knowledge effect?

Stimulate conflict

Engage in consensus-building activities

Decrease decision making time

Focus on commonly-held interests and information

 

5) If a firm’s long-run average cost of production increases by 15 percent as a result of an 8 percent increase in production the firm is most likely experiencing:

Economies of scale

Constant returns to scale

Market contraction

Diseconomies of scale