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Case 2

Robers Pvt. Ltd established in 1985 manufacturing light bulbs but later diversified into ceiling fans called Voltec with unique features like operating at low voltage. It currently supplies Voltec as a monopoly producer to separate markets in Uttar Pradesh and Bihar, charging the same price. The chief economist informed management that price elasticity of demand is 3 in Bihar and 5 in Uttar Pradesh. Management is considering charging different prices and wants to know if it's possible and profitable to do so.

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684 views

Case 2

Robers Pvt. Ltd established in 1985 manufacturing light bulbs but later diversified into ceiling fans called Voltec with unique features like operating at low voltage. It currently supplies Voltec as a monopoly producer to separate markets in Uttar Pradesh and Bihar, charging the same price. The chief economist informed management that price elasticity of demand is 3 in Bihar and 5 in Uttar Pradesh. Management is considering charging different prices and wants to know if it's possible and profitable to do so.

Uploaded by

archana_anuragi
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Managerial Economics

Robers Pvt. Ltd was established in 1985. The company started manufacturing of light bulbs
with a brand name of Prakash. During initial 10 years, the company made good profits. But,
its profits gradually declined due to competition from national brands. The promoters of the
company had committed team of engineers who were constantly working on Research and
Development. Finally, they came out in the year 2000, with an innovative product, a unique
ceiling fan Voltec which runs even at very low voltage and consumes less electricity.
However, its speed is slow. Thus, the company is monopoly manufacturer of Voltec. The
company is currently supplying its products in geographically separated markets of Uttar
Pradesh and Bihar. The company is currently charging the same price in Uttar Pradesh and
Bihar. The Chief Economist of the company has informed the top management that price
elasticity of demand at currently charged price is 3 in Bihar and 5 in Uttar Pradesh. The top
management is planning to charge two different prices in Uttar Pradesh and Bihar in order to
make more profits.
(a) Will it be possible for the company to charge two different prices in Uttar Pradesh and
Bihar?
If yes, under what conditions? Explain.
(b) Will it be profitable for the company to charge two different prices in Uttar Pradesh and
Bihar? Explain.
(c) Give the volume of total production supply will be transferred from Uttar Pradesh to Bihar
of from Bihar to Uttar Pradesh? Why?
(Assume that transport cost for supplying the product in Uttar Pradesh and Bihar is the same for
the company)

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