Question

Please write in sentence and explain clearly, Thank you,

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?

Answer 1

Answer : When shorTech introduced it's quardant mobile phone , it had few competitors and set price above it's cost and earned maximum profit. It set price i.e $500 above its marginal cost.within the time past , the competitors entered in the market, now shorTech have to lower it's price .As now the competitors entered in the market and customer become price conscious . So, the best option for shorTech is to charge price is equal to marginal cost ( P= MC). So, now the current price they should charged is $300. Otherwise shorTech looses it's Market share.