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Managerial Economics Case Study

Gagan Pvt. Ltd. manufactures water heaters and developed an innovative new product called Maha Ganga in 2006. It runs on low voltage and uses less electricity. The company has a monopoly on Maha Ganga and supplies products to the separate markets of Punjab and Haryana. The chief economist informed management that demand elasticity is 3 in Punjab and 5 in Haryana. Management wants to charge different prices to maximize profits.

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Sharad Patil
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13K views1 page

Managerial Economics Case Study

Gagan Pvt. Ltd. manufactures water heaters and developed an innovative new product called Maha Ganga in 2006. It runs on low voltage and uses less electricity. The company has a monopoly on Maha Ganga and supplies products to the separate markets of Punjab and Haryana. The chief economist informed management that demand elasticity is 3 in Punjab and 5 in Haryana. Management wants to charge different prices to maximize profits.

Uploaded by

Sharad Patil
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Managerial Economics case study

Gagan Pvt. Ltd. was established in 1995. The company started manufacturing
of Water Geyser with a brand name of' Ganga'. 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 a
committed team of workers who were constantly working on Research and
Development. Finally, they came out in the year 2006, with an innovative
procuct, named Maha Ganga which runs even at very low voltage and
consumes less electricity. Thus, the company is monopoly manufacturer of
'Maha Ganga'. The company is currently supplying its products in
geographically separated markets of Punjab and '11' Haryana. The company
is currently charging the same price in Punjab and Haryana. The Chief
Economist of the company has informed the top management that price
elasticity of demand at currently-charged price is 3 in Punjab and 5
in Haryana. The top management is planning to charge two different
prices in Punjab and Haryana. In order to make more profits.

Questions:

1. Will it be possible for the company to charge two different prices in


Punjab and Haryana ? If yes, under what conditions? Explain.

2. Will it be profitable for the company to charge two different prices in


Punjab and Haryana ? - Explain.

3. Given the volume of total production, supply will be transferred from


Punjab to Haryana or from Haryana to Punjab. Why?

(Assume that transport cost for supplying the product m Punjab and Haryana
is the same for the company.)

Solutions :
1 and 2 : Yes, as the new product runs even at very low voltage and consumes
less electricity. No competition. Monopoly in production.
3.
Conclusion :
Maha Ganga which runs even at very low voltage and consumes less
electricity. Thus, the company is monopoly manufacturer of 'Maha Ganga'.
The company is currently supplying its products in geographically separated
markets of Punjab and Haryana. With proper planning they have to make
more profit.

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