Question

Read the following case study carefully and answer the questions given below the case;
In November 1975, Mr. Kumar Shetty, the Managing Director of Standard Motors Limited, Madras, called a conference of his top aides to discuss the situation arising out of the fall in the demand for cars of the company as a result of recession in automobile industry. Mr Ranjit Patnaik; Sales Manager, Mr. Ajaya Sawhney; the Cost Accountant and Dr. K.D. Tewari; the Business Economist of the company were present at the conference. The Sales Manager, Mr. Patnaik, quoted certain demand analysis for new automobiles and pointed out that the price-elasticity of demand for new automobiles have been estimated to range over 1.5 to 1.7. According to him, if we have the elasticity coefficient as 1.5, this would mean that a 1.0 percent decrease in price would produce a 1.5 percent increase in demand. At the existing price of Rs. 25,000 per car he estimated the sales volume of at 1,000 cars. He, therefore, calculated that if the price is reduced from Rs. 25,000 to Rs. 24,000 the volume and revenue will be affected.

Questions;
(1) Whether a decrease in price will be profitable to the firm? If yes, how?
(2) What was the total amount/estimated total revenue for Standard Motor Limited before and after a decrease in price?
Q. (3) In order to increase the sales volume by 100 cars, what should be new price of car?

Answer 1

Answer:

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