You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose that, due to the successful lobbying efforts of sugar producers in the United States, Congress is going to levy a $0.50 per pound tariff on all imported raw sugar - the primary input for your product. In addition, Coke and Pepsi plan to launch an aggressive advertising campaign designed to persuade consumers that their branded products are superior to generic soft drinks. How will these events impact the equilibrium price and quantity of generic soft drinks?

Question

Business

Tania Wiley

22 May, 00:21

You are the manager of a firm that produces and markets a generic type of soft drink in a competitive market. In addition to the large number of generic products in your market, you also compete against major brands such as Coca-Cola and Pepsi. Suppose that, due to the successful lobbying efforts of sugar producers in the United States, Congress is going to levy a $0.50 per pound tariff on all imported raw sugar - the primary input for your product. In addition, Coke and Pepsi plan to launch an aggressive advertising campaign designed to persuade consumers that their branded products are superior to generic soft drinks. How will these events impact the equilibrium price and quantity of generic soft drinks?

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Answers (1)

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Eliezer Weiss · Answer 1

Price will rise because of input

while demand decrease because of competition increasing their market share.

Explanation:

as the company imports sugar an input price increase will make for an increase in the price. As national sugar probably was alkready at higher cost than imported sugar both; national sugar and imported sugar will be of the same price.

Also, the quantity demanded for our customer may decrease as we don't have the firepower to advertize as Coca nad Pepsi hence, the demand will decrease if their commercial campaing are successfully