A person is starting a business that will be an agent for a large manufacturer of bicycles. He will sell the bicycles to retailers in one region of the country where he will be the only agent for that brand of bicycles. He will buy the bicycles from the manufacturer for Php 1,500 and with his other costs for promotion and administration, the total cost to buy and sell one bicycle will be Php 1,900. Competition is fierce in the bicycle business and a low price is important to the customers, so the retailers normally buy from the supplier who offers the lowest price.
The major competitors charge between Php 2,000 and Php 2,500 for a bicycle, depending on the size of the order. The entrepreneur is new to the business so it is important for him to establish good relations with many retailers. For this reason, he will not offer discounts for large orders in the beginning, but rather charge a low price even for small orders. He decides to set his price at Php 2,200.”
What can you say about the scenario/situation? Is the decision of the person good? Why or why not?
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