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Using Data to Determine Strategy, GCSE Coursework Example

Pages: 1

Words: 725

GCSE Coursework

Overview

Scenario: Suppose that two firms, A and B, compete. They can choose different strategies – a combination of low price or high quality. The accompanying table show the best practice frontiers for each firm.

A’s Possibilities   B’s Possibilities
Price Quality Price Quality
0 12 0 6
1 8 2 4
2 4 4 2
3 0 6 0

Action Item

Determine the following items based on the information in the overview.

  • What is the cost to A of 1 unit of high quality?

The cost to A of 1 unit of high quality is .25. That is, as the price moves from 0 to 1 the quality falls 4 units.  Thus, a 1 unit increase in price is equal to 4 quality units or 1 quality unit is equal to .25.

  • What is the cost to B of 1 unit of high quality?

The cost to B of 1 unit of high quality is 1. That is, as the price moves from 0 to 2 the quality falls 2 units.  Thus, a 1 unit increase in price is equal to 1 quality units or 1 quality unit is equal to 1.

  • What is the cost to A of 1 unit of price?

The cost to a of 1 unit of price is 4 units of quality.  That is, as the price moves from 0 to 1, the quality falls 4 units.  Thus, a 1 unit increase in price is equal to 4 quality units.

  • What is the cost to B of 1 unit of price?

The cost to B of 1 unit of price is 1 quality unit.

  • Which firm should focus on high quality? Explain your answer from an economic perspective.

Firm A should focus on high quality. This is because quality is relatively cheaper to Firm A compared to Firm B: Firm A pays .25 in price for a unit of quality; Firm B pays 1 unit in price for a unit of quality.  Thus, Firm A can provide higher quality goods than Firm B.

  • Which firm should focus on low price? Explain your answer from an economic perspective.

Firm B should focus on lower price. This is because price is relatively cheaper to Firm B compared to Firm A: Firm B essentially pays 1 unit of price of quality and thus can offer a lower price than Firm A.

Write a one-page business brief to your professor that contains the information you were to have determined. Note: You are not just to answer the questions asked but create a business brief that informs the reader based on your answers.

This brief looks at the competitive advantages of two firms: Firm A and Firm B.  These two firms are producing products based on two qualities: quality and price.  Thus, each firm experiences a  trade-off between those two qualitie

For Firm A, it is able to better focus on quality.  This is because of the tradeoff between a unit of price for a unit of quality.  That is, for a one unit increase in price, firm A only pays .25 units in quality. Thus, it is able to produce high quality items for a relatively low price: This advantage is evident in the fact that is able to provide an item that is priced at 1 unit and has 8 quality units.  By the time the product price hits 3, however, Firm A is already producing an item without any quality.  Thus, Firm A’s relative competitive advantage is best served through providing  items with high quality.

Firm B, on the other hand, pays a much larger price for quality.  Indeed, for each unit of price it pays a unit of quality.  This means that a higher quality strategy probably is not the best one for Firm B.  Rather, Firm B would be better to compete on price in that it has more options for price than Firm A, albeit at a lower quality than Firm A could produce.  Thus, Firm B would likely maximize its price advantage over Firm A   For example, Firm B has more product offerings at different price points than Firm  A:  while Firm A only offer products up to 3 price units (with a quality offered of 0), Firm B offers products up to 6 price units with varying levels of quality.

Overall, each firm has a different competitive advantage that should be explored in the pricing and offering of their goods.

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