Scenario 2: Assume. Chrysler Motor Corporation competes with Ford and General Mo
ID: 345221 • Letter: S
Question
Scenario 2: Assume. Chrysler Motor Corporation competes with Ford and General Motors in the SUV market. The tires for the SUV are supplied by Goodyear Tires which competes with Michelin and BFGoodrich In what kind of market does Chrysler compete? What about Goodyear Tires? If Chrysler wants to increase their prices, would reducing supply of a commodity SUV cause prices to increase? Why or why not? What impact does supply / demand have on prices for the tires If Chrysler builds too many of an SUV in a model year, what kind of cost is that? If Goodyear delays investment in a new tire capability and BFGoodrich releases the capability first, what kind of cost did Goodyear experience? If Chrysler's union negotiates an increase in their salaries from Chrysler which are then passed on to the consumer; is this inflationary? WhyExplanation / Answer
1. Chrysler competes with the other car manufacturers in the sports and utility vehicle market. In this category, Goodyear tire competes with Michelin tires. The market is competitive.
2. Reducing their supply will cause Chrysler to create an inflation in price due to the fact that less supply will allow them to increase their prices because it will cause the demand to increase. This works on the basis of elasticity of demand and price elasticity of demand.
3. Again, if the supply of the SUV is more, the SUV will have an effect on the prices of the Tyres which will also work on the basis of elasticity. Due to increased demand, the prices of the tire will increase but due to increased supply of the SUV, the prices will effectively decrease. these form the basis of the concept of supply and demand where, the increase in demand leads to an increase in price but, an increase in the supply leads to a decrease in demand and effectively the prices of the goods decrease.
4. If Chrysler builds too many SUV in a year, the cost will have to decrease. because of the reason that the increase in supply causes a decrease in the price of the good.
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