Question

Please Read Harvard Business Case - Maruti Suzuki India Limited - Sustaining Profitability and answer the questions below in detail:

4) How are cross elasticity and income elasticity relevant to Maruti's managerial decisions?

5) What role does inflation play in expanding the market base in a sticky-price model?

6) Where do economies of scale for Maruti come from? How can Maruti sustain its profitability in the future?

Answer 1

cross elasticity is used to measure the reponsiveness of the quantity that is demanded for a commodity in order to change the price of another commodities.both cross and income elasticityare of great relevancy of the maryti s managerial decision making as it helps for formulating better price strategy.higher the value of cross elasticity of demand between the products,greater will be the competition in the markets and lower the value of cross elasticity,the market will be less competitive.In the same way if cross elasticity is zero or almost zero,there is monopoly or zero competition in the market.

The economics of scale means thecost advantage that a business obtain when they increase their production then the costs per unit declines the more they produce..