Question

You are the manager of Coca-Cola and are facing the effect of a research (published in 2004) that reports that consuming high fructose corn syrup (HFCS) is associated with promoting obesity. Consider the number of news reports and the number of other research papers on this topic that have been published since 2004. This issue is relevant to you because HFCS is the sweetener used in soft drink manufacturing. Then, you are to:

1. What would you do to offset the effect of the HFCS-obesity research on the demand for Coca-Cola? Based on economic theory explain your decision. Explain if your decision is working.

2. Would you increase or decrease price to boost Coke sales? Based on economic theory, explain your choice.

3. Based on economic theory, explain how Coke’s advertising would affect the demand for Pepsi.  

4. Based on economic theory, explain why you would spend a lot of money on.

Answer 1

1) It is given that the reports are associated the sweetener with obesity. it would then discourage the demand for beverages that uses this sweetener. With decrease in demand for Coca-Cola there would be a decrease in the price and the quantity sold.

As a manager, different options can be used to boost sales. Advertising is one of them. Bulk pricing can be used if where consumers will be given a reduction in the price for bulk purchase. Different variant can be introduced that uses Alwar quantity of that sweetener.

2) We should decrease the price to boost sales. This is because when there is a reduction in the price, the law of demand prevails and quantity demanded rises.

3) Advertising done one of the firm in the market increases its sales at the expense of the other. Therefore when coke advertises, the demand for Pepsi will decrease

4) we would like to spend a lot of money on advertising because it will increase the demand for the product which will then help in raising the price and increasing the revenue earned. it may be a cause of concern if the advertising expenditure becomes too large.