2. Plum charges £500 for its smartphone, producing a revenue of £8 million per month. It fears that a competitor, MV, wi
Posted: Sun Jul 03, 2022 6:49 am
2. Plum charges £500 for its smartphone, producing a revenue of£8 million per month. It fears that a competitor, MV, will shortlymake a price reduction of 10% for its product. The marketingmanager is considering whether to match this price reduction inorder to try and maintain sales. She has estimated that Plum’s PEDis –1.5 and the CED with the competitor’s product is 0.8. Themarginal cost is estimated to be 42% of the price.
a) Calculate the effect on Plum’s sales volume and revenueassuming it maintains its price at the existing level.
b) Calculate how much of a price cut Plum would need to make tomaintain its sales volume at the existing level.
c) Evaluate whether the price cut is a good strategy
a) Calculate the effect on Plum’s sales volume and revenueassuming it maintains its price at the existing level.
b) Calculate how much of a price cut Plum would need to make tomaintain its sales volume at the existing level.
c) Evaluate whether the price cut is a good strategy