Question
You are the CEO of the Weemakmor Widget Corp. (WWC), which is the only seller of widgets in North America. Your annual sales are $200
You are the CEO of the Weemakmor Widget Corp. (WWC), which is the only seller of widgets in North America. Your annual sales are $200 million; your annual profits are $55 million.
1. Your Director of Research, whose judgment you trust, has just told you that, for the first time her research group has been able to develop an estimate of the demand elasticity for your widgets, which she believes is reliable; that estimate is -0.83. The action that you should take (in order to maximize WWC's profits) is (a) raise widget prices; (b) reduce prices; (c) leave prices unchanged; (d) delay taking any action because you have insufficient information. Explain briefly.
2. One year later your company is taken over by the International Conglomerate Corp. (ICC), so you are now the president of the WWC division. The CEO of ICC promptly informs you that $1.00 per widget (10% of your current widget price) will be allocated to the central treasury of ICC, to take into account the advertising, accounting, and other support services that ICC will be providing. The action that you should now take (to maximize ICC's profits) is to (a) raise widget prices; (b) reduce prices; (c) leave prices unchanged; (d) delay taking any action because you have insufficient information. Explain briefly.
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