Where the company manufactures umbrellas, among other accessories. and six months ago, the company projected sales of 5,000 units of your $16 umbrellas over the course of a year, and went ahead to produce 5,000 umbrellas, but so far you've sold less than half, what this means is that "Demand of this product at this price is less than anticipated, so you should produce fewer umbrellas in the future." (Option A)
The information provided does not indicate that there is any complaint with the price. With time, all the inventory will be sold off and the production costs recouped. Dropping the price may not affect the demand. This will only translate to loss of anticipated profit and may be capital.
Hence the right move is to adjust future production forecasts accordingly. The only condition for reducing price is if the reduced price still covers the Marginal Cost of producing the umbrella.
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Full Question:
Your company manufactures umbrellas, among other accessories. Six months ago, you projected sales of 5,000 units of your $16 umbrellas over the course of a year, so you produced 5,000 umbrellas. But so far you've sold less than half. What does this mean, and what is the best way to address the situation?
a. Demand of this product at this price is less than anticipated, so you should produce fewer umbrellas in the future.
b. Supply of this product at this price is too great and competition too intense, so you should discontinue making umbrellas.
c. Demand of this product at this price is less than anticipated, so you should drop the price.
d. Demand of this product at a higher price must be greater, so you should start marketing your umbrellas as a premium product sold at a higher price point.
