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The Nature of Industry
Paper instructions:
Multiple choice and this question:
This question is taken (with minor revision) from “Chapter 7: The Nature of Industry”, page 263 of the book Managerial Economic and Business Strategy, 5th edition by Michael Baye. This question can be completed as an out-of-class exercise but should be completed individually.
In the 1990s, five firms supplied amateur color film in the United States: Kodak, Fuji, Konica, Agfa, and 3M. From a technical viewpoint, there was little difference in the quality of color film produced by these firms, yet Kodak’s market share was 67 percent. The own price elasticity of demand for Kodak film was -2.0 and the market elasticity of demand was -1.75. Suppose that in the 1990s, the average retail price of a roll of Kodak film was $6.95 and that Kodak’s marginal cost was $3.475 per roll. Based on this information, discuss industry concentration, demand and market conditions, and the pricing behavior of Kodak in the 1990s. Do you think the industry environment is significantly different today? Explain.
 
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