ECO404 Managerial Economics GDB No.1 Solution Due Date: 29 May, 2015

The Case:

National Foods Limited is a prominent supplier of the spices in Pakistan as well as abroad. It was established in 1970 as a spice company. The aim of this company is to make food hygienic, foster health and decrease the time of women in the kitchen. This company introduced Computerized Reporting Yield for Sales and Trade Automation Landscape which is helpful for the distributor to book their orders through mobile phones. By this activity, cost of sales reduced from 15.5% of the sales revenue in year 2013 to 13.1% in year 2014 and sales volume of the company has been pushed up by 13.8%. There are some other companies like Shan Foods, Chef Pride and Mehran which sell spices. As National Foods enjoys the reduced sales cost so it is planning to reduce the prices of spices.

Requirement:


Being a student of Managerial Economics, describe how reduced price decision will affect the demand of other suppliers like Shan Foods, Chef Pride and Mehran if they keep prices of spices unchanged. Also explain which concept of elasticity will apply in this situation.

Solution:
Just to permit you to  begin with the basic set up, we have a tendency to tend to ar talking "Substitutes" here, so people will certain as shooting tend to shift from a product to its substitute if there is a decrease in its (substitute's) worth. Same is that the case here, as National Foods ar lowering their prices people who were practice completely different Brands like Tai, Mehran, will certain as shooting be attracted towards National Foods and later, the Sales of National's Substitutes will decline. property of demand throughout this case is high as a minor modification in worth can cause a notable modification in its demand.