Question

The market for laundry detergents in a country has several​ players, each with a slightly differentiated product. Squeaky Clean​ Inc. produces and sells​ 20,000 tons of household laundry detergent in this market at a price of​ $4 per pack. Alex​ Dawson, the operations manager of the​ firm, thinks that a​ 50-cent increase in the price per pack of the laundry detergent will increase the​ firm's profits. The marketing​ manager, Rick​ Arnold, however, feels that an increase in price will adversely affect the demand for its product and profits will actually decline. Which of the​ following, if​ true, will strengthen​ Alex's argument?
a. Shares of Squeaky Clean are being actively traded in the stock market.
b. Squeaky Clean has recently launched a new range of car washes.
c. The current prices of most of Squeaky​ Clean's products are lower than the prices of competing brands.
d. The demand for industrial detergents is likely to increase in the near future.
e. A market survey shows that a close rival has now overtaken Squeaky Clean in quarterly sales.

Answer 1

Answer:

c. The current prices of most of Squeaky​ Clean's products are lower than the prices of competing brands.

Explanation:

If this statement was given to be true, it would be evident that Squeaky Clean​ has a competitive advantage based on the lower price, meaning consumers are probably opting for this brand because of the competitive price.

So, if they increase the price for 50 cents, consumers wouldn't perceive it as a deal-breaker, as their median price will still remain lower than those of competitors'.

Therefore, this slight increase in the price of one product will be significant for overall profit.