Economic Principles and Strategic Decision Making: Schmeckt Besser Bar

This report provides an in-depth analysis of economic principles and decision-making strategies for Schmeckt Gut's new Schmeckt Besser energy bar. It examines the importance of price elasticity of demand in determining pricing policies, shifting tax burdens, and international trade benefits. The report suggests strategies for a smooth product introduction, focusing on demand and supply equilibrium, opportunity costs, and competitive pricing against Fly High's energy bars. It calculates price elasticity at various price points, cross-price elasticity to determine the relationship between Schmeckt Gut and Fly High's products (identifying them as substitutes), and provides recommendations based on different market structures (perfect competition, monopoly, monopolistic competition, and oligopoly) to maximize profits. The analysis emphasizes the importance of market research and understanding consumer behavior to ensure a successful product launch. Desklib offers a platform to access this and similar solved assignments.

Economic Principles and Decision Making
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Contents
Problem A...................................................................................................................................................3
1) Explain importance of Elasticities for this undertaking...................................................................3
2) Provide suggestions to the board to ensure the smooth introduction of the Schmeckt Besser
Energy Bar...............................................................................................................................................4
Problem B....................................................................................................................................................6
1. What is the price that will maximize the total revenue of Schmeckt Gut and what is the price
elasticity of demand at this price.............................................................................................................6
2. A. What is the price elasticity of demand when the price of Schmeckt Gut Energy Bar increases
from $1 to $2...........................................................................................................................................8
B. What is the price elasticity of demand when the price of Schmeckt Gut Energy Bar is $ 1.50...........9
3. Calculate cross price elasticity of demand for Fly High’s Energy bars sold with respect to the price
of Schmeckt Gut Energy Bar.................................................................................................................10
4. Investigate whether the Schmeckt Gut Energy Bar and Fly High’s Energy bars are complementary
goods, substitute goods or there is no relation between the two............................................................11
Problem C..................................................................................................................................................13
1. Provide suggestions to ensure the smooth introduction of the Schmeckt Besser energy Bar related
to the different market structures and identify the market structure for energy bars..............................13
2. Can you think of the specific task for the Schmeckt Gut Research Department in reference to a
market research analysis........................................................................................................................17
References.................................................................................................................................................18
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Problem A
1) Explain importance of Elasticities for this undertaking.
The elasticity of demand will provide the various advantages to the Board of Schmeckt Gut
which is explained as follows:
Determination of price policy:
The determination of the price can be done by the Schmeckt Gut which will be done through the
elasticity of demand for the particular product (Suleiman, et. al., 2012). This is important as by
lowering the price of the product will increase the demand and thus the profit of the organization
will increase. There will be increase in demand in less proportionate with fall in price therefore
the profits will be less and revenues will also decrease. If there is inelastic demand then the
higher price will be fixed by the producer and the elastic demand will fix the lower price
(Suleiman, et. al., 2012).
Shifting of Tax Burden:
The producer can shift the burden of the taxes which are indirect to the buyers by increasing the
price of the product which is dependent upon degree of elasticity of demand (Bass, 2018). When
there will be the elastic demand so the burden will be on the producer and if there will be the
inelastic demand then the burden will increase on buyers by increasing the price of product
(Baumeister and Peersman, 2013).
Help in international trade:
The Schmeckt Gut will get benefit from the international trade when the price of the exports are
fixed at the lower price for which the demand is elastic and the price will be high whose demand
is inelastic. This is important as the trade between the two of the countries is dependent upon the
elasticity of demand based upon the exports and imports of the two countries. The demand is
elastic means that the trade will benefit the seller country (Bass, 2018).
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So, these are the importance for the Board to calculate the elasticity of demand for the particular
product (Bass, 2018).
2) Provide suggestions to the board to ensure the smooth introduction of the Schmeckt
Besser Energy Bar.
To introduce the new product Schmeckt Besser energy bar it is suggested to the Schmeckt gut
research department to look upon the demand and the supply of the product (Dineshbakshi,
2018). The demand is the amount that the customer is willing to pay for purchase of the
particular product and the supply can be defined and the total amount of the goods as well as the
services that are available to the customers (Bennett, et. al., 2012). For the introduction it is
necessary to keep the price of the product according to the price of the Fly High who is the
competitor so that the supply of the goods can be increased and the equilibrium point has to be
set by the producer so that the best possible price for the product can be determined. The point
where the amount of supply interacts the demand is called the point of equilibrium
(Dineshbakshi, 2018).
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Image: Equilibrium Point
Source: Dineshbakshi, 2018
With this the opportunity cost of the product also plays the key role while determining the price
it can be explained through the production possibility curve which shows that how much the one
product has to sacrifice so as to obtain the other product (Dineshbakshi, 2018). So, the goods
which will have the few substitute those will be higher inelastic and the price elasticity with
more substitute will have the high elastic. So, it can be said that the Schmeckt Besser energy bar
does not have much substitute so it can be said that the demand for the product will be more
inelastic than the elasticity of the product (Dineshbakshi, 2018).
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Problem B
1. What is the price that will maximize the total revenue of Schmeckt Gut and what is
the price elasticity of demand at this price.
Price Quantity
Demanded
Revenu
e
1 30 30
1.5 25 37.5
2 20 40
2.5 15 37.5
3 10 30
30 25 20 15 10
0
5
10
15
20
25
30
35
40
45
Price
Revenue
It can be seen from the above graph that the price at which the total revenue will be maximum is
the $2 where the quantity demanded for the product is 20 units (Meng, et. al., 2014). So, the
price elasticity of the demand at that price is as follows:
Price Quantity Demanded
1.50 25
2 20
Change in price=2-1.5
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=0.5
Change in quantity demanded= 20-25
=-5
Price elasticity of demand = % change in quantity demanded/ % change in price
=5/0.5
=10
So, when the price is $2 the elasticity of demand is 10.
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2. A. What is the price elasticity of demand when the price of Schmeckt Gut Energy
Bar increases from $1 to $2.
Price Quantity Demanded
1 30
2 20
Initial Price= 1
New price= 2
Initial Quantity demanded = 30
New quantity demanded = 20
Price Elasticity of Demand= % change in quantity demanded/ % change in price
% change in quantity demanded = New quantity – Initial quantity
=20-30
=-10
% change in price= New price- Initial Price
=2-1
=1
The negative sign will be ignored in quantity demanded as there is the inverse relationship due to
which the negative sign occurs.
Price elasticity of demand=10/1
=10
Therefore, the price elasticity is 10.
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B. What is the price elasticity of demand when the price of Schmeckt Gut Energy Bar is $
1.50.
Price Quantity Demanded
1 30
1.50 25
Original Price= 1
New Price= 1.50
Original Quantity= 30
New quantity= 25
% change in quantity=25-30
=-5
% change in price= 1.5-1
=0.5
Price Elasticity= 5/0.5
=10
Hence, the price elasticity of demand at $1.50 is 10.
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3. Calculate cross price elasticity of demand for Fly High’s Energy bars sold with
respect to the price of Schmeckt Gut Energy Bar.
Price Quantity demanded of
Schmeckt Gut Energy Bar
Quantity demanded of Fly
High’s Energy bars
$3 10 11
$2 20 9
Percentage change in the price of Schmeckt Gut Energy Bar= -33%
Percentage change in demand of Fly High’s Energy bars= -18%
Cross price elasticity of demand=% change in quantity demanded of Fly High’s Energy
bars / % change in price of Schmeckt Gut Energy Bar
=-18%/133%
=0.54
Here, the price elasticity is positive so it can be said that the goods are the substitute goods.
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4. Investigate whether the Schmeckt Gut Energy Bar and Fly High’s Energy bars are
complementary goods, substitute goods or there is no relation between the two.
It can be said that the Schmeckt Gut Energy Bar and the Fly High’s Energy bars are the
substitute goods as the price elasticity of both the goods is positive (Tutor2U economics, 2018).
The substitute goods mean that the demand for one good is increased if the price of another good
is also maximized. So, if the price of Schmeckt Gut Energy Bar will increase the demand for the
Fly High’s Energy bars will also increase (Tutor2U economics, 2018).
Image: Elasticities of Substitute Goods
Source: Tutor2U Economics, 2018
It can be predicted from the picture that the Elasticities depends upon the nature whether the
good is close substitute or the weak substitute (Tutor2U economics, 2018). The pricing of the
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