Homework Help is Here – Start Your Trial Now!
Business
Economics
(a) Provide an estimate of the US price elasticity of demand for Roundup. Be clear about the assumptions your estimate is based upon. (b) Based on your estimate of the price elasticity of demand, do you think Monsanto's price decrease caused an increase in Monsanto's profits? (Hint: recall that profit equals revenue (i.e., px q) minus cost. You will have to make an assumption regarding the value of unit cost.)

(a) Provide an estimate of the US price elasticity of demand for Roundup. Be clear about the assumptions your estimate is based upon. (b) Based on your estimate of the price elasticity of demand, do you think Monsanto's price decrease caused an increase in Monsanto's profits? (Hint: recall that profit equals revenue (i.e., px q) minus cost. You will have to make an assumption regarding the value of unit cost.)

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

figures 5.8 and 5.16 provided. everything is provided so there should be no excuse to not answer it. the previous 2 'experts' are dumb and couldn't provide me with an answer

 

**5.22. Monsanto’s Roundup™** Roundup, the trademarked name of glyphosate, is a chemical herbicide developed and patented in the 1970s, becoming Monsanto’s leading product for decades. In the late 1990s, it became the best-selling agricultural chemical of all time, significantly contributing to the company’s profits. Glyphosate-based herbicides generated net sales of $2.4 billion for Monsanto in 2001 alone, nearly half of Monsanto’s total sales. **5.3. OUTPUT LEVEL AND PRICE** This success was driven by several factors. One was a strategic reduction in prices in the United States, where patent protection gave Monsanto an effective monopoly until September 2000. (Prices were lower outside the US, where patents expired earlier.) Between 1995 and 2000, Monsanto reduced the price by an average of 9% per year. With volume increasing by an average of 22% a year, revenue and profits soared. Table 5.8 presents the values of prices and unit sales in both the US and overseas. Figure 5.16 illustrates the various time series. Another factor in Roundup’s success was the popularity of conservation tillage, which is an environmentally friendly farming method where crops are planted without plowing the fields first. This method reduces the loss of topsoil and moisture. By applying a nonselective herbicide like Roundup, weeds are removed without plowing. Analysts suggest that conservation tillage is sensitive to the prices of herbicides, making it a significant component of its cost. A third factor was the development of herbicide-tolerant crops. Monsanto’s Roundup Ready corn was approved in 1998, followed by soybeans. Monsanto claimed that Roundup and Roundup Ready seeds were complementary products, with price reductions boosting demand for both. Even as patents expired, Monsanto managed to maintain its market shares. In Brazil, for instance, Monsanto's patent expired in 1981, yet the 2001 market share was 81%. High market share meant Monsanto could exploit economies of scale and work its way down the learning curve.
Transcribed Image Text:**5.22. Monsanto’s Roundup™** Roundup, the trademarked name of glyphosate, is a chemical herbicide developed and patented in the 1970s, becoming Monsanto’s leading product for decades. In the late 1990s, it became the best-selling agricultural chemical of all time, significantly contributing to the company’s profits. Glyphosate-based herbicides generated net sales of $2.4 billion for Monsanto in 2001 alone, nearly half of Monsanto’s total sales. **5.3. OUTPUT LEVEL AND PRICE** This success was driven by several factors. One was a strategic reduction in prices in the United States, where patent protection gave Monsanto an effective monopoly until September 2000. (Prices were lower outside the US, where patents expired earlier.) Between 1995 and 2000, Monsanto reduced the price by an average of 9% per year. With volume increasing by an average of 22% a year, revenue and profits soared. Table 5.8 presents the values of prices and unit sales in both the US and overseas. Figure 5.16 illustrates the various time series. Another factor in Roundup’s success was the popularity of conservation tillage, which is an environmentally friendly farming method where crops are planted without plowing the fields first. This method reduces the loss of topsoil and moisture. By applying a nonselective herbicide like Roundup, weeds are removed without plowing. Analysts suggest that conservation tillage is sensitive to the prices of herbicides, making it a significant component of its cost. A third factor was the development of herbicide-tolerant crops. Monsanto’s Roundup Ready corn was approved in 1998, followed by soybeans. Monsanto claimed that Roundup and Roundup Ready seeds were complementary products, with price reductions boosting demand for both. Even as patents expired, Monsanto managed to maintain its market shares. In Brazil, for instance, Monsanto's patent expired in 1981, yet the 2001 market share was 81%. High market share meant Monsanto could exploit economies of scale and work its way down the learning curve.
**Title**: Analysis of Roundup’s Price and Sales (US and Overseas) --- **Figure 5.16**: *Roundup’s Price and Sales (US and Overseas)* This figure contains two line graphs illustrating trends from 1995 to 2002. 1. **Price Graph (Top Graph)**: - *Y-Axis*: Price ($ per gallon) ranging from 0 to 50. - *X-Axis*: Years from 1995 to 2002. - *Lines*: - Blue Line: US Price, showing a consistent downward trend from $45 in 1995 to $23 in 2002. - Red Line: Overseas Price, slightly fluctuating around the $20 mark but generally decreasing from $21 in 1995 to $13 in 2002. 2. **Sales Graph (Bottom Graph)**: - *Y-Axis*: Sales (millions of gallons) ranging from 0 to 80. - *X-Axis*: Years from 1995 to 2002. - *Lines*: - Blue Line: US Sales, showing a gradual increase from 15 million gallons in 1995 to 45 million gallons in 2002. - Red Line: Overseas Sales, initially low at 13 million gallons in 1995, peaking at 72 million gallons in 2000, and then slightly decreasing to 60 million gallons by 2002. --- **Table 5.8**: *Roundup’s Price and Sales (US and Overseas)* The table provides a detailed account of Roundup’s price per gallon and sales quantity in both the US and overseas from 1995 to 2002. - **1995**: - US Price: $45, Overseas Price: $21 - US Sales: 15 million gallons, Overseas Sales: 13 million gallons - **1996**: - US Price: $44, Overseas Price: $20 - US Sales: 20 million gallons, Overseas Sales: 16 million gallons - **1997**: - US Price: $40, Overseas Price: $15 - US Sales: 25 million gallons, Overseas Sales: 30 million gallons - **1998**: - US Price: $35, Overseas Price: $13 - US Sales: 30 million gallons
Transcribed Image Text:**Title**: Analysis of Roundup’s Price and Sales (US and Overseas) --- **Figure 5.16**: *Roundup’s Price and Sales (US and Overseas)* This figure contains two line graphs illustrating trends from 1995 to 2002. 1. **Price Graph (Top Graph)**: - *Y-Axis*: Price ($ per gallon) ranging from 0 to 50. - *X-Axis*: Years from 1995 to 2002. - *Lines*: - Blue Line: US Price, showing a consistent downward trend from $45 in 1995 to $23 in 2002. - Red Line: Overseas Price, slightly fluctuating around the $20 mark but generally decreasing from $21 in 1995 to $13 in 2002. 2. **Sales Graph (Bottom Graph)**: - *Y-Axis*: Sales (millions of gallons) ranging from 0 to 80. - *X-Axis*: Years from 1995 to 2002. - *Lines*: - Blue Line: US Sales, showing a gradual increase from 15 million gallons in 1995 to 45 million gallons in 2002. - Red Line: Overseas Sales, initially low at 13 million gallons in 1995, peaking at 72 million gallons in 2000, and then slightly decreasing to 60 million gallons by 2002. --- **Table 5.8**: *Roundup’s Price and Sales (US and Overseas)* The table provides a detailed account of Roundup’s price per gallon and sales quantity in both the US and overseas from 1995 to 2002. - **1995**: - US Price: $45, Overseas Price: $21 - US Sales: 15 million gallons, Overseas Sales: 13 million gallons - **1996**: - US Price: $44, Overseas Price: $20 - US Sales: 20 million gallons, Overseas Sales: 16 million gallons - **1997**: - US Price: $40, Overseas Price: $15 - US Sales: 25 million gallons, Overseas Sales: 30 million gallons - **1998**: - US Price: $35, Overseas Price: $13 - US Sales: 30 million gallons
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps with 3 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Multiplicative Exponential demand Model
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS