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Managerial Economics

Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well): a. The price of Coke decreases. If the price of Coke decreases and the price of Pepsi remains the same, Pepsi is now higher in price which will increase the quantity demand for Coke and the demand for Pepsi will fall down.

If you are going to purchase a can of Pepsi, you may walk right past the Coke machine, but when you notice that the price of Coke has decreased ND Pepsi is more in price, you will turn around and buy the Coke. At first you were not planning to purchase Coke, but now, at a decrease price, you are going to buy it. So the demand for Coke has increased. The demand curve has shifted to the right for Coke. B. Average household income falls from $50,000 to $43,000.

If the average household income falls it depends on the household if the demand for Pepsi decreases or if it doesn’t. Some households can budget their money to still buy Met-445-02: Managerial Economics By lucubration’s household and the budget for the household requires

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less money to spend on rockeries, this will decrease the demand for Pepsi because the household will no longer be able to spare the money to buy the Pepsi like they were able to do before their income decreased.

So the demand for Pepsi has decreased. The demand curve has shifted to the left for Pepsi. C. There are improvements in soft-drink bottling technology. If there are improvements in soft-drink bottling it would increase the supply of Pepsi and show outward shift of the supply curve. By this happening it will make the equilibrium to be higher in demand and decrease price. So the demand will be met aster for Pepsi and improve consumer confidence. Meaning Pepsi has increased in demand. D.

The price of sugar increases and the Pepsi launches an extremely successful advertising campaign. If the price of sugar increases it would decrease the demand and raise the supply and it will cost more to produce Pepsi. It will make the profit margin decrease. The only way to prevent this from happening is if the price to the consumer rises. 2. Use the following equations for demand and supply to solve for market equilibrium price and quantity

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