It was the year 2008 and recession had hit U.
S in a very bad way. The M. D of ‘Gearing Up’, which is a company producing race bikes, is worried with the present scenario. The company in 2007 lost 5 margin points on the sale of new bicycles and with the recession coming up, there might be a continuation of an unfortunate trend of losing money on the sale of these bikes. The retailers and suppliers of the U. S race biking industry, which are huge in number, lost sleep over how much to commit for and what to bring to the market.
And with all this activity to become the market leader, no seller has a negligible impact on the market price. Along with ‘Gearing Up’ there are other companies also which are into a deep problem with the losses coming up and are gradually winding up. The M. D of the company, though troubled with the present scenario, has a feeling that if somehow through some strategies, the company can withstand this horrific situation, and the future might bring in a condition where it can increase its market share. So he feels that rather than closing down, sustaining through innovative strategies might bring in a better future.
ObjectiveHuge in number they cant impact in price it’s a perfectly competitive industry.Q1. Case 1 = loss. Explained clearly.Q2. Higher cost as well as loss.
Average cost will go up avg variable cost may go up. Price is going up, average variable cost is also going up. Avg cost must remain above the price.Q3. Do you feel that in the future the company might increase its market share?Q4. The M.
D plans to sustain, rather than closing down. Can you come up with a condition beyond which sustaining is not possible.
