Calhoun & Pritchard is showing loss at $3, why then it is not raising the price?As using the matrix arrived at on slide 12, C&P would see severe erosion of its market share and total contribution, unless BTC also charges at the same price - $4.The market share and total contribution of C&P is much better to what it would be at $4, irrespective of the fact BTC priced their product at $3 or $4.
CASE STUDY QUESTION 4: DISCUSSIONCan you prove price elasticity of demand theory from the question?The product is inelastic as though there is a decrease in demand for a unit increase in price, but at the same time the revenue (total contribution) rises.As the price increase, a majority of customers shift to a cheaper competitor for the same type of product.In case if the product is increased at the same time by all the groups, there is a 20% fall in demand and 80% of the customers continue to buy the product, and do not migrate to an alternative.This is evident in our presentation on slide 4 and slide 12 – Prisoner’s Dilemma.
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- Management, Strategic Cost Management, Beauregard Case Study