The makers of Panax pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panax and generic paracetamol are the same and constant. 1. Draw a diagram showing Panax’s demand, marginal revenue and marginal cost curves. Label Panax’s price and mark-up over marginal cost. 2. Repeat part (1) for a producer of generic paracetamol. How do the diagrams differ? Which company has the bigger mark-up? Explain. 3. What factors would affect the extent to which the makers of Panax could engage in predatory or destroyer pricing to force out competitors in this market
The makers of Panax pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panax and generic paracetamol are the same and constant.
1. Draw a diagram showing Panax’s demand, marginal revenue and marginal cost
2. Repeat part (1) for a producer of generic paracetamol. How do the diagrams differ? Which company has the bigger mark-up? Explain.
3. What factors would affect the extent to which the makers of Panax could engage in predatory or destroyer pricing to force out competitors in this market?
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