Economics of Multiple Products Economics for CEOs

Product policy, promotional policy and pricing policy are three important business policy decisions. Microeconomic theory has been developed on the premise that each firm makes only one product. Managerial decision problem of product coverage in the case of multi-product firm was discussed from an economic viewpoint by Joel Dean in chapter 3 of his book. hy does a firm decide to produce multiple products! "#cess capacity of a firm in certain production facilites $or managerial facilties% &due to indivisibility of certain facilities' (ecular shifts&Demand for e#isting product has come down due change in tastes and hence e#cess capacity appears'. )ertical integration *esearch &research finds certain technologies that reduce production times and thereby create e#cess capacity or it develops new products that make e#isting products obsolete and thus create e#cess capacity' Policy on +dding ,ew Products Policy on Dropping -ld Products hy does the problem arise! Product obsolescence caused by basic changes in consumer taste or by striking improvements in rivals. products forces firm to think of dropping e#isting products. *eference Managerial "conomics by Joel Dean -riginally posted at http/00knol.google.com0k0narayana-rao0economics-of-multipleproducts01utb1lsm1k2a03345