econ questions 5

Answer the following question:-

Brand Extensions

Suppose Nikes managers were considering expanding into producing sports beverages.

Why might the company decide to do this under the Nike brand name?

Rangers’ T-shirts

The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $18,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $8,000). Does this production exhibit scale economies or scope economies?

Multiconcept Restaurants Are a Growing Trend

A multiconcept restaurant incorporates two or more restaurants, typically chains, under one roof. Sharing facilities reduces costs of both real estate and labor. The multiconcept restaurants typically offer a limited menu, compared with full-sized, stand-alone restaurants. For example, KMAC operates a combination Kentucky Fried Chicken (KFC)/Taco Bell restaurant. The food preparation areas are separate, but orders are taken at shared point-of-sale (POS) stations. If Taco Bell and KFC share facilities, they reduce fixed costs by 30%; however, sales in joint facilities are 20% lower than sales in two separate facilities. What do these numbers imply for the decision of when to open a shared facility versus two separate facilities?

Hand Sanitizer

Due to the H1N1 flu outbreak, the demand for hand sanitizer tripled. Should Johnson &

Johnson increase production of their Purell hand sanitizer? Should it invest in doubling production capacity?

Valentine’s Day

On Valentines Day, the price of roses increases by more than the price of greeting cards. Why? (Hint: Consider what makes roses and cards different and how that difference might affect supplys responsiveness to price.)

Faculty Housing Benefits

At a university faculty meeting in 2000, a proposal was made to increase the housing benefits for new faculty to keep pace with the high cost of housing. What will likely be the long-run effect of this proposal? (Hint: Think indifference principle.)

Snacks, Beer, and Marijuana

Snack food venders and beer distributers earn some monopoly profits in their local markets but see them slowly erode from various new substitutes. When California voted on legalizing marijuana, which side would you think that California beer distributors were on? What about snack food venders? Why?

Competitive Industries

Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or on pricing strategies?

Economics versus Business

Describe an important difference in the way an economist and a businessperson might view a monopoly.

Elasticity of T-shirt Sales

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price to $9.50 he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is $4 per shirt, what is his desired markup and what is his initial actual markup? Was raising the price profitable?

Increasing Movie Ticket Prices

To conduct an experiment, AMC increased movie ticket prices from $9.00 to $10.00 and measured the change in ticket sales. Using the data over the following month, they concluded that the increase was profitable. However, over the subsequent months, they changed their minds and discontinued the experiment. How did the timing affect their conclusion about the profitability of increasing prices?

Promotional Pricing

An end-of-aisle price promotion changes the price elasticity of a good from 2 to 3. If the normal price is $10, what should the promotional price be?

Bar Nuts

Why do bars offer free peanuts?

Asset Auctions in Sweden;

In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no reorganization through Chapter 11 bankruptcy.) The current managers are often the high bidders for the company. Why?

Art Auctions;

When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, representatives of other museums that have no chance of winning are actively wooed by the auctioneer to attend anyway. Why?

Contractor Bidding:

Moe Green estimates the cost of future projects for a large contracting firm. Mr. Green uses precisely the same techniques to estimate the costs of every potential job, and formulates bids by adding a standard profit markup. For some companies to whom the firm offers its services, no competitors exist, so they are almost certain to get them as clients. For these jobs, Mr. Green finds that his cost estimates are right, on average. For jobs where competitors are also vying for the business, Mr. Green finds that they almost always end up costing more than he estimates. Why does this occur?

Scale and Scope

What is the difference between economies of scale and economies of scope?


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