Question: The total demand in Europe and Canada is 1300 tones. The variable cost of NutraSweet is $18 per lb. and the variable cost of HSC

The total demand in Europe and Canada is 1300 tones. The variable cost of NutraSweet is $18 per lb. and the variable cost of HSC is $25. Suppose that the fixed cost is irrelevant. The expected price in price war is $25 per lb. and in normal competition is $50. (1 ton = 2205 lbs.).HSC plans to enter the market with 500 tones production capacity. If NutraSweet undercuts HSC (price war), it retains the entire 1300 tones market. If it accommodates HSC entry, it will sell 800 tones and the rest will be sold by HSC (normal competition).

What is the best option for NutraSweet? What should be the response of HSC in both scenarios (price war and normal competition)?

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