Question

Rawlding is a manufacturer in the oligopolistically competitive market for footballs. Two other manufacturers, Spaldon and Wilke, compete with Rawlding for football consumers. Rawlding faces the kinked demand curve for footballs depicted on the graph. Initially, Rawlding charges $30 per football, producing and selling 7 million footballs per year.

a) Increase price to maximize profit
b) Decrease price to capture market share
c) Maintain price at $30 to stay competitive
d) Adjust price based on competitors' prices

Answer 1

Rawlding should maintain the price at $30 to stay competitive in the oligopolistic market for footballs.

Step-by-step explanation:

To maximize profit, Rawlding should adjust the price based on competitors' prices. The kinked demand curve indicates that if Rawlding increases the price, its competitors are likely to maintain their prices, resulting in a significant decrease in demand for Rawlding's footballs. Therefore, increasing the price is not a viable option.

On the other hand, decreasing the price may help Rawlding capture market share. By lowering the price, Rawlding can attract more customers and potentially increase its sales volume. However, this strategy may not necessarily lead to maximizing profit.

The best approach for Rawlding is to maintain the price at $30 to stay competitive. This is because lowering the price may lead to a price war with its competitors, resulting in lower overall profits for all firms. By staying competitive and maintaining the price, Rawlding can maintain its market position and continue to generate profits.