2. Was the decision to lower the price of cigarettes by the weaker firms in the industry correct after taxes on cigarettes were raised? Wouldn't this lower their profit? What information would you need to know to determine the effect on profits of lowering the price of the product in order to increase sales? Why did the stronger firms in the industry origi- nally decide not to lower their price also? Why did they subsequently also lower prices? Again, what informa-tion did they need and use to reach this decision? Why did Philip Morris drastically cut the price of its top brand in 1993? Did it not realize that its com-petitors would retaliate by also lowering their prices? Would you not have tried to get together with the other firms to avoid such competitive lowering of prices?
2. Was the decision to lower the price of cigarettes by the weaker firms in the industry correct after taxes on cigarettes were raised? Wouldn't this lower their profit? What information would you need to know to determine the effect on profits of lowering the price of the product in order to increase sales? Why did the stronger firms in the industry origi- nally decide not to lower their price also? Why did they subsequently also lower prices? Again, what informa-tion did they need and use to reach this decision? Why did Philip Morris drastically cut the price of its top brand in 1993? Did it not realize that its com-petitors would retaliate by also lowering their prices? Would you not have tried to get together with the other firms to avoid such competitive lowering of prices?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2
Transcribed Image Text:2. Was the decision to lower the price of
cigarettes by the weaker firms in the industry
correct after taxes on cigarettes were raised?
Wouldn't this lower their profit? What
information would you need to know to
determine the effect on profits of lowering the
price of the product in order to increase sales?
Why did the stronger firms in the industry origi-
nally decide not to lower their price also? Why
did they subsequently also lower prices? Again,
what informa-tion did they need and use to
reach this decision?
Why did Philip Morris drastically cut the price of
its top brand in 1993? Did it not realize that its
com-petitors would retaliate by also lowering
their prices? Would you not have tried to get
together with the other firms to avoid such
competitive lowering of prices?
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