2. Hirschman's hypothesis about the quality/quantity demand curve that firms face is that consumers react asymmetrically to decreases in quantity (increases in quality lapses) as compared to subsequent restoration of quality (decreases in quality lapses). This is illustrated to the right. When quality initially deteriorates the elasticity of the response in demand is low at the beginning and becomes high as intolerable deterioration finally leads to the exodus of consumers. During the improvement phase elasticities will be low in the low quality ranges and will only eventually become high as improvement is confirmed. What does this say about the ability of a firm to restore revenue after a quality lapse? Assume that the initial quality is L1, that quality lapses to L2, and then it returns to Li. Note: it may help to augment the diagram in discussing your answer.

2. Hirschman's hypothesis about the quality/quantity demand curve that firms face is that consumers react asymmetrically to decreases in quantity (increases in quality lapses) as compared to subsequent restoration of quality (decreases in quality lapses). This is illustrated to the right. When quality initially deteriorates the elasticity of the response in demand is low at the beginning and becomes high as intolerable deterioration finally leads to the exodus of consumers. During the improvement phase elasticities will be low in the low quality ranges and will only eventually become high as improvement is confirmed. What does this say about the ability of a firm to restore revenue after a quality lapse? Assume that the initial quality is L1, that quality lapses to L2, and then it returns to Li. Note: it may help to augment the diagram in discussing your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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