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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?

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter7: Consumers, Producers, And The Efficiency Of Markets
Section: Chapter Questions
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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?
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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