Chapter 19

# Last quarter abingdon company sold 1000 decorative

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Last quarter Abingdon Company sold 1,000 decorative decals for \$1 each, Cedar Decaliania sold 200 decorative decals at \$4 each, Creative Decals sold 500 decals at \$2 each, and Donnelly, Inc. sold 300 decals for \$4 apiece. Assuming the four companies are the only firms competing in the decorative decal market, calculate unit and dollar market share for each company for last quarter. For each com- pany, which market share figure might be used in an advertisement for that company?

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ANS: The following calculation table shows the resultant unit and dollar shares. Market share should be ex- pressed in percentage points. Firms often state market share in terms that are most flattering to the company. Abingdon would express unit shares in an advertisement, while Cedar Decaliania and Don- nelly would use dollar shares. Creative Decals's market share is 25 percent for either calculation. Company Units sold Unit price Total dollars Unit market share Revenue Market Share Abingdon 1,000 \$1.00 \$1,000 1,000/2,000 = 50% \$1,000/\$4,000 = 25% Cedar Decaliania 200 \$4.00 \$ 800 200/2,000 = 10% \$ 800/\$4,000 = 20% Creative Decals 500 \$2.00 \$1,000 500/2,000 = 25% \$1,000/\$4,000 = 25% Donnelly 300 \$4.00 \$1,200 300/2,000 = 15% \$1,200/\$4,000 = 30% 2,000 \$4,000 100% 100% See Exhibit 19.1. PTS: 1 REF: 298 OBJ: 19-2 TOP: AACSB Analytic | AACSB Communication | TB&E Model Pricing 5. List the two primary determinants of price. What other factors can affect price setting? ANS: The price established depends primarily on (1) DEMAND for the good or service and (2) the COST to the seller of that good or service. Other factors that would influence price include distribution strategies, promotion strategies, perceived quality, and stage in the product life cycle (including com- petition). PTS: 1 REF: 306-309 OBJ: 19-6 TOP: AACSB Communication | TB&E Model Pricing 6. The daily demand for bottled water is 35 bottles when the price is set at \$1. However, if the price is raised to \$5, the demand is only 5 bottles. The bottled water producer is willing to supply 40 bottles if the price is set at \$5 per bottle, but will only supply 10 bottles if the price is set at \$2. Draw the supply and demand curves for the water bottles on the graph below. Label each curve and each axis. At what level does equilibrium occur? What are the areas of surplus and shortage?
ANS: The vertical axis should be labeled as price, and the horizontal axis should be labeled as quantity. The demand curve should show a negative slope, crossing the positively sloped supply curve at the equilib- rium point of \$3 and 20 units. Surplus occurs in the area between the curves and above the equilibrium point while shortage occurs below the equilibrium point. PTS: 1 REF: 300 OBJ: 19-3 TOP: AACSB Communication | TB&E Model Pricing 7. Define elasticity of demand and compare and contrast the three types of demand: elastic, inelastic, and unitary. What would the demand curve for elastic and inelastic demand look like when graphed?

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• Spring '10
• Patterson
• Supply And Demand, AACSB Reflective Thinking, TB&E Model Pricing

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