Asked by Angelisa Tejeda on Jul 28, 2024
Verified
Zinc Communications developed a new type of cellular telephone that has a three-dimensional (3-D) screen. The company holds a patent on this technology, so they are the only seller of the 3-D phone when it is introduced. Over time, other companies introduce phones that are similar but not identical (i.e., they do not violate the patent held by Zinc) . What happens to the demand for 3-D phones facing Zinc and to the profit-maximizing price for the 3-D phone as these similar products enter the market?
A) Demand becomes less elastic, price increases.
B) Demand becomes less elastic, price declines.
C) Demand becomes more elastic, price increases.
D) Demand becomes more elastic, price declines.
Elastic
Describes a situation where the quantity demanded or supplied of a good responds significantly to changes in its price.
Patent
A legal right granted by a government to an inventor, giving exclusive rights to use, make, and sell an invention for a certain period of time.
- Analyze how entering the market and competitive actions affect the power of monopolies and their pricing methods.
- Explore the relationship between demand elasticity and the adoption of pricing strategies for profit maximization.
Verified Answer
ZK
Zybrea KnightAug 03, 2024
Final Answer :
D
Explanation :
When similar products enter the market, the demand for 3-D phones facing Zinc becomes more elastic, as consumers have more options to choose from. Therefore, in order to compete with the new products, Zinc needs to lower the price of their 3-D phone in order to maintain market share and continue selling their product. As a result, the profit-maximizing price for the 3-D phone will decline.
Learning Objectives
- Analyze how entering the market and competitive actions affect the power of monopolies and their pricing methods.
- Explore the relationship between demand elasticity and the adoption of pricing strategies for profit maximization.