1.(30 points) Elasticity of demandis a measure used by economists to shows how much demand for a product changes as price of that product changes by 1 percent. For example, if elasticity of demandfor a product is -2, then a 1 percent increase in price of a product results in a 2 percent decrease in demand for that product. If elasticity is smaller than -1 (or absolute value is larger than 1) we say demand for the product is elastic. If elasticity is between 0 and -1 (or absolute value is between 0 and 1) we say demand for the product is inelastic. Demand for many small businesses' products (e.g. food products) is known to be very elastic (i.e. elasticity is smaller than -1).

a.Assume you have a meat processing plant and elasticity of demand for your sausage products is approximately -2. Would you follow a cost leadership or a benefit leadership for your sausage products? Why (10 points)?

b.You have recently created a new type of healthy beef jerky that does not have many close substitutes. Elasticity of demand for this product is approximately

-0.5. Would you follow a cost leadership or a benefit leadership for your healthy beef jerky (10 points)? Why (10 points)?

c.Why do you think demand for sausage products is more elastic that demand for healthy beef jerky (10 points)?

2.(20 points) Many graduated of this faculty are hired by large grain companies. Imagine you have been hired by the sales department of a grain company. This company exports Canadian lentils to India, Middle East, and some other countries. You have been asked to write short report on how this company can practice price discrimination in order to obtain a competitive advantage.

a.(10 points) Mention at least 2 different ways the company can practice 2^nd degree price discrimination?

b.(10 points) Mention at least 2 different ways the company can practice 3^rd degree price discrimination. (hint: assume India is the largest importer of Canadian lentils and think about WHEN 3^rd degree price discrimination can be practiced).

3.(10 points) In class, we have talked about Santa Fe Food Company's Clean Cherry Sause products several times. What do you think the basis of competitive advantage for this company is? Do you think they pursue a cost leadership or a benefit leadership?