Market definition plays a key role in competition analysis and has often proved controversial. However‚ it is merely a means to an end‚ the real issue being to establish whether or not firms have significant market power‚ i.e. the power to increase prices. This objective is rather different to the traditional neo-classical economic view of a market. The introduction of the SSNIP test in the US Department of Justice 1982 Merger Guidelines resulted in the development of new methods for defining markets
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MBA Managerial Economics Review Questions for the Final Exam (Illustrative Answers) PRICE IS LOWER IN A MORE ELASCTIC MARKET!!!!!!!!!! 0.1-1 Introduction:Managerial Decision-Making and Market Processes (a) How does operational effectiveness differ from organizational strategy? Operational effectiveness is achieving excellence in individual activities while organizational strategy is about combining these activities to fit and reinforce one another and create competitive advantage and
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Assignment Set-I Q1. Price elasticity of demand depends on various factors. Explain each factor with the help of an example. Answer. Elasticity of Demand: Earlier we have discussed the law of demand and its determinants. It tells us only the direction of change in price and quantity demanded. But it does not specify how much more is purchased when price falls or how much less is bought when price rises. In order to understand the quantitative changes or rate of changes in price and demand‚ we have
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among Le Shuttle users * Patterns among peak travelers * Price elasticity of freight traffic Among users of Le Shuttle passenger car service‚ it was noted that the top three important factors in crossing included reliability (70%)‚ value for money (65%)‚ and speed (30%). As reliability is assumed equal between the tunnel and ferries‚ the next biggest factor in customer value is price. By offering even a slightly reduced price than the ferries‚ many customers will switch to using Le Shuttle
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percentage change in the price‚ i.e. when: Percentage change in the quantity demanded > 1 Percentage change in the price Example A fall in the price of cotton in Antigua and Barbuda from $20 to $18 causes the quantity demanded to increase from units to 150 units In the figure above‚ the price range $20 to $18‚ demand is elastic. Percentage change in the quantity demanded = = = 50% Percentage change in the price = = = 10% Elasticity of demand = = 5 Therefore
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of the model. According to this theory‚ modern firms are managed by both the manager and the shareholders. A manager aims to maximize the rate of growth of the firm and the shareholders will try to maximize the dividend and the increase the share price. Sales Maximization Model: This is alternative model for profit maximization model. The model has been propounded by W.J. Baumol who was an
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with a low price elasticity of demand or those with a high price elasticity of demand? Explain. Considering that we are talking about the same product‚ in an industry with many firms‚ where producers and consumers know all quoted prices and where the consumers can identify the product as homogeneous‚ it is fair to say that we are talking about a scenario close to perfect competition‚ thus demand for the product is very elastic. So‚ Ryanair is trying to attract high price elasticity customers.
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burden (incidence) of an indirect tax on the producers & on the consumer varies depending on the price elasticity of demand for the good/product. Indirect Tax is a tax placed upon the selling price of a product‚ so it raises the firm’s cost and shifts the supply curve left or vertically upwards depending on the amount of tax. Because of this shift‚ less products will be supplied at every price. The diagram below shows the effect of imposing a tax and how the tax is being paid. There’re two
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1. A legal maximum on the price at which a good can be sold is called a? price ceiling. 2. Which of the following is likely to have the most price elastic demand? Breakfast cereal‚ corn flakes 3. A reduction in a country ’s barriers to trade? benefits some citizens of the importing country but does not benefit the domestic producers in the importing country. 4. The amount of a good that buyers are willing and able to purchase is quantity demanded. 5. Suppose a market in which demand is more elastic
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into a new market. Price Elasticity of Demand Dairy as an entire market is viewed by most as a necessity for health purposes. Whether it’s fluid milk‚ cultured yogurt‚ or cheese‚ the dairy market is elastic in relation to price. Elasticity in economics is reflective of supply and demand. If we make adaptations to quantity based upon price then the supply is elastic (Hall‚ n.d.). On the demand side‚ demand is elastic if the level of demand is impacted by changes in price. There is competition
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