Pricing to Competition When ShorTech introduced its Quadrant ...

[NguyenJ]

Pricing to Competition When ShorTech introduced its Quadrant mobile phone, it had few competitors and so it set a price of 500 when its unit cost was 350 . The economics consulting firm it hired to estimate the demand elasticity confirmed this was the optimal price. Since then, entry has occurred that make customers more price conscious. When it rehired the economics consulting firm to estimate the demand elasticity, it found that demand had become more elastic at -4 . Also, it eked out cost savings and now has a unit cost of 300 . What price should ShorTech charge now?

Question 2

Would the shopkeeper be able to convince the customer that he would usher the customer out if he gets a low price?
 a. Yes, such threats are always credible
 b. No, because losing the sale is not in the shopkeeper's best interest
 c. No, because he would get more by accommodating the low price than losing the sale
  d. Both B&C

[GCabra]

Answer to Question 1

ShorTech wants (P-MC)/P = 1/e or (P-300)/P = 1/4 . This means that P = 400.

Answer to Question 2

d

[NguyenJ]

Thanks for the timely response, appreciate it

[AmberC1996]

TYSM