Economic Principles And Decision Making Assignmnent

Instructions:

Provide written answers to the following 2 problems. Discuss and explain sufficiently.

Problem A:

As discussed in Module 1, Schmeckt Gut plans to introduce the Schmeckt Besser energy bar on the

market.

1. In your own words, what is the importance of the topic ‘Elasticities’ for this undertaking?

Explain this to the Board of Schmeckt Gut.

2. What do you suggest the Board instruct the Schmeckt Gut Research Department to do

to ensure a smooth introduction of the Schmeckt Besser energy bar. Your answer

should be related to the topic of Elasticities.

Problem B:

Records of the demand schedule for the Schmeckt Gut Energy Bar in Industria in 2010 reveals the

following table:

Price

($ per Energy Bar)

Quantity demanded

(thousands per day)

1.00 30

1.50 25

2.00 20

2.50 15

3.00 10

The Board of Schmeckt Gut would like to receive information to the following questions:

1. What is the price that will maximise Schmeckt Gut’s total revenues and what is the price

elasticity of demand at that price?

2. The Board asks you to investigate the following scenarios:

a. What is the price elasticity of demand when the price of the Schmeckt Gut Energy

Bar increases from $1.00 to $2.00?

b. What is the price elasticity of demand when the price of the Schmeckt Gut Energy

Bar is $1.50?

3. The Research Department of Schmeckt Gut has identified that a decline in the price of the

Schmeckt Gut Energy Bar from $3.00 to $2.00 increases the quantity of our energy bars sold

from 10 to 20 (thousand per month). At the same time, they identified that this decline in

the price reduces the quantity of Fly High’s energy bars sold from 11 to 9 (thousand per

month).

a. The Board asks you to calculate the cross-elasticity of demand for Fly High’s energy

bars sold with respect to the price of our Schmeckt Gut Energy Bar.

4. The Board would like you to investigate whether the Schmeckt Gut Energy Bars and the Fly

High Energy Bars are complementary goods, substitute goods or is there no

interdependence between the two products? Explain!

Problem C:

1. What is your suggestion to the Board to ensure a smooth introduction of the Schmeckt

Besser energy bar? Your answer should be related to the different market structures

discussed in Module. Based on this, attempt to identify a market structure for energy bars

(you can use the internet to estimate it. However, as long as you are able to support your

inferences with theory, the answer will count)

2. Can you think of specific tasks for the Schmeckt Gut Research Department in reference to a

market structure analysis? Explain!