How can advertising make films demand curve more inelastic

Assignment Help Business Economics

Reference no: EM132537263

Problem 1.

There are several market structures in which firms can operate. The type of structure influences the firm's behavior, whether it is efficient, and the level of profits it can generate.

Neo-classical theory of the firm distinguishes a number of market structures, each with its own characteristics and assumptions. The structure of a market refers to the number of firms in the market, their market shares, and other features which affect the level of competition in the market. Market structures are distinguished mainly by the level of competition that exits between the firms operating in the market.

a. Discuss how monopolistic competition is a mixture of monopoly and perfect competition?

b. Explain with example why product differentiation is necessary for monopolistic competition?

c. Explain how can advertising make a film's demand curve more inelastic?

Problem 2.

Hinode Bhd. Have hired you as a consultant to advise them on their pricing of their products.
They have given you the following information on the current prices that they are charging and the estimated price elasticity of demand for each product at those prices:

Product	Price Changed	Price Elasticity
Headphone with MIC	RM 175	1.00
Earbuds with Charging Box	RM 120	0.80
Full HD Wifi Action Camera	RM 284	1.70

Required:
a. The company wants to maximize its revenue from the sales of these three products, what general pricing advice (higher/lower/no change) would you give to each product? Explain.

b. Discuss with illustrations how the knowledge of cross-elasticity and income -elasticity of demand of the form's product helps managers in making business decisions.

Problem 3.

Sonic Bhd. Manufactures head set costing RM 1,800 each. Its sales have averaged about 9,000 units per month during the past year. In August, Sonic's closest competitor, Theta Bhd. Cuts its price for a closely competitive model from RM 1,700 to RM 1,600. Sonic noticed that its sales volume declined to 8,000 units per month after Theta announced its price cut.

a. Calculate the cross-price elasticity of demand between Sonic's head set and the competitive Theta model. What does this elasticity indicate about the relationship between the two products?

b. If Sonic knows that the price elasticity of demand for its head set is 1.9, calculate the price Sonic would have to charge to sell the same number of units it did before Theta price cut.

c. What is Sonic average monthly total revenue from the sale of head set before and after the price change determined in part (b)? Is charging the new price desirable?

Reference no: EM132537263

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