Final Case Study

Augusto B. Agosto
Managerial Economics
University of San Carlos

1. How do you know that cutting the price of Roundup was a good idea for Monsanto?
In 1995, it is just right to lower the price since Monsanto is still positioning itself as a chemical
herbicide developer. With its control and monopoly on patent franchise, coupled with the
popularity of the product raising the volume of the product is the best idea in generating
sustained revenue and profits.
Under elasticity of demand, if the percentage increases in quantity is greater than the percentage
fall in price, the revenuethe product of price and quantitymust increase. The positive change
in quantity more than compensates for the fall in price.
The situation have so many factors to consider in maintaining the volume increase due to
uncertainty and fear of the public on its product, but it was outweigh by the popularity gained by
the herbicide produced by Roundup.

2. How might you estimate the elasticity of demand and the profit-maximizing price for
1995. Do you think Monsanto set the right price?
The elasticity of demand is based on percentage change on quantity demanded over Price. Based
on the data of volume increased on the average of 22% over the 9% a year decrease in price is
more than 1% (2.4%). They can maximise profits if it produces at an output where Marginal
revenue (MR) = Marginal cost (MC).
The price set by Monsanto is just right as seen in its revenue generated. There is a 2.4% increase
in the ratio between the price drop and the volume increase for the period.
3. If cutting price was a good idea, why didnt Monsanto do it earlier?

In 1990, cutting price is not a good idea yet. Monsantos strategy of revenue derived from being
large and diversified chemical company producing nylon, plastics, films, hydraulic fluids,
aspartame (Nutrasweet), and pharmaceuticals. The company in this period was positioning itself
in the market. The demand for the round up product and the popularity of the product is not yet
established before; lowering price without commensurate or greater rise in demand would only
result to company loss.It was in the mid-1990s, when Monsanto positioned itself as a highgrowth life sciences company, focusing on agriculture, food ingredients, and pharmaceuticals.

Date submitted: May 29, 2016