Neutron Inc, is one of the leading electric car manufacturers in Northbay, a dev
ID: 2494836 • Letter: N
Question
Neutron Inc, is one of the leading electric car manufacturers in Northbay, a developing economy. Neutron's sales increased by more than 20% this year compared to the previous year, which started a debate within the company about whether the firm should increase prices.Among those in favor of a price hike is Eric Johnson, the operations head at Neutron. Eric is of the opinion that given the high demand for Neutron's car, the firm should increase price to improve profits. Mike Wilson, the CEO of the firm, however, feels that a price increase would adversely affect teh demand for Neutron's products because he thinks consumers in this industry are more price conscious than brand loyal. Which of the following, if true, will weaken the case for a price increase? A.Workers at Neutron's manufacturing units demanding wage hikes. B. The recent increase in fuel prices was very steep. C. some of Neutron's competitors have recently announced price cuts. D.Many people have emigrated to Northbay from neighboring countries in the recent past. E.Neutron's physical capital depreciates at a rate of 3% every year.
Explanation / Answer
It has been stated that consumers of electric car are not brand loyal instead they are price concious. This means that they will buy from that seller who will offer them lower prices.
If competitors of Neutron Inc. cuts the price of their offering and Neutron resorts to price increase then in that case lack of brand loyalty and price-concious behavior will induce many consumers to substitute cars of other manufacturers for cars of Neutron Inc.
In such case, demand for cars of Neutron Inc. will decrease and its aim of increasing profits by increasing price will not materialise.
Instead, it will see its profit declining due to decrease in demand for its product.
Hence, the correct answer is option (C).