Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1
Transcribed Image Text:4. (10%) Ji Xiang Ju is the largest producer of pickle in two markets. In market A, the
pickles carry Ji Xiang Ju’s popular label, Tai San, and receive a substantial price
premium. In market B, Ji Xiang Ju sells pickles without any logo, uses the simplest
package and labels with the name Ji Xiang Ju. The retail price of the pickles carrying the
Tai San label is $37 while the Ji Xiang Ju pickles sell for $28. The price elasticity of
demand for Tai San pickles is -1.5, and the elasticity of demand for Ji Xiang Ju pickles is
-5. Moreover, the research suggests that both elasticities are constant over broad ranges
of output.
Are Tai San's current price optimal?
b. Management considers the $28 price to be optimal and necessary to meet the
competition. What price should the firm set for the Tai San label to achieve an
optimal price ratio?
а.
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