Question

3. A firm that acquires a substitute product can reduce cannibalization by

a. doing nothing.

b. repositioning a product so that it does not directly compete with the substitute.

c. setting the same price on both products.

d. lowering prices on the low-margin products.

5. After firm A producing one good acquired another firm B producing another good, it lowered the prices for both goods. One can conclude that the goods were

a. substitutes.

b. complements.

c. not related.

d. none of the above.

6. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because

a. they lose market power.

b. there is an increase in the overall demand for their products.

c. the aggregate demand for both goods is more elastic than the demand for the individual goods.

d. the aggregate demand for both goods is less elastic than the demand for the individual goods.

12-1: Parking Lot Optimization Suppose your elasticity of demand for your parking lot spaces is 22, and price is $8 per day. If your MC is zero, and your lot is 80% full at 9 a.m. over the last month, are you optimizing?

Answer 1

3. A firm that require a substitute a product can reduce cannibalization by re-positioning a product so that it does not directly compete with the substitute . Hence, option(B) is correct.

5.  After firm A producing one good acquired another firm B producing another good, it lowered the prices for both goods. One can conclude that the goods were substitutes. Hence,option(A) is correct.

6. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because the aggregate demand for both goods is less elastic demand than the demand for the individual goods. Hence,option(D) is correct.

7. No, in this scenario we are not optimizing the demand for lot spaces. The spaces should be priced at full capacity. To correct this problem , we should reduce the price in order to fill all the available parking spots. But after we make the reduction, if the lot fills to capacity before Sam,then we will know that we reduced the price too low and need to raise it to meet the demand. In other words, The demand is elastic If there should be a decrease in price this may likely to increase revenue and will increase profit. It is unlikely that the lot is optimizing.If the lot is 80% full each day,then decreasing price will be optimal.On the other hand , if the 80% capacity is for weekdays and for weekends it is nearly empty ,then prices might actually be too low. A price reduction would not increase the number of customers on weekends and a price increase may however keep the lot at capacity.