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ECF5927 MANAGERIAL ECOOMICS, EXERCISE 2 

Instructions:

Answers should be typed in a Word document. You may add a reference list (this is not counted toward the word limit). Answers that include graphs and examples (where possible) will receive higher marks. You must click the 'SUBMIT' button to submit the assignment.

Include all sources of AI in your reference list. AI tools may be used to locate information; however, the written assessment must be entirely the student’s own work. All assessments must be checked in Turnitin prior to submission to review the similarity index. The similarity score should be below 25%. If your score does not appear in the green range in Turnitin, revise and resubmit multiple iterations until it falls within an acceptable range (0–20%).

1. A smartphone producer, Ptreng, introduces a new model called Star L34 into the market. At the launch stage, the firm adopts a price skimming strategy, targeting consumers whose demand is relatively unresponsive to price changes. Over an eighteen-month period, increasing competition and product diffusion gradually make the market more competitive, and demand becomes more price sensitive.

(a) Explain why demand for the Star L34 model is relatively price inelastic during the initial launch phase. In this stage, would the firm charge a relatively high price or low price? Justify your answer.

(b) Describe how the pricing strategy is likely to change as the product moves from introduction to maturity in the market.

(c) During the maturity stage, the sales manager focuses on maximizing total revenue rather than only price. Explain the economic reasoning behind this objective.

(2+ 2 + 3 = 7 marks, maximum 300 words)

2. In recent months, Australia experienced fuel shortages due to global oil supply disruptions and panic buying by consumers. Petrol prices increased significantly, and many petrol stations temporarily ran out of fuel. The government releases fuel reserves to stabilize the market.

Evaluate whether this policy is effective in reducing price volatility.

(3 marks, maximum 150 words)