Chapter 1: Q1LO (page 27)
Summarize how goals, constraints, incentives, and market rivalry affect economic decisions.
Summarizing how goals, constraints, incentives and markets rivalry affects the economic decision.
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Jamie is considering leaving her current job, which pays \(75.000 per year, to start a new company that develops applications for smart phones. Based on market research, she can sell about 50.000 units during the first year at a price of \)4 per unit. With annual overhead costs and operating expenses amounting to $145,000, Jamie expects a profit margin of 20 percent. This margin is percent larger than that of her largest competitor, Apps, Inc.
a. If Jamie decides to embark on her new venture, what will her accounting costs be during the first year of operation? Her implicit costs? Her opportunity costs?
b. Suppose that Jamie’s estimated selling price is lower than originally projected during the first year. How much revenue would she need in order to earn positive accounting profits? Positive economic profits?
two months ago, the owner of a car dealership (and a current football star) significantly changed his sales manager’s compensation plan. Under the old plan, the manager was paid a salary of $6,000 per month; under the new plan, she receives 2 percent of the sales price of each car sold. During the past two months, the number of cars sold increased by 40 percent. But the dealership’s margins (and profits) significantly declined. According to the sales manager, “consumers are driving harder bargains and I have had to authorize significantly lower prices to remain competitive. “What advice would you give the owner of the dealership?
Brazil points to its shrimp-farming industry as an example of how it can compete in world markets. One decade ago, Brazil exported a meager 400 tons of shrimp. Today, Brazil exports more than 58,000 tons of shrimp, with approximately one-third of that going to the United States. Brazilian shrimp farmers, however, potentially face a new challenge in the upcoming years. The southern shrimps Alliance-a U.S. organization representing shrimp-producing countriesselling shrimp below “fair market value.” The organization is calling for the United States to impose a 300 percent tariff on all shrimp entering the united states’ borders. Brazilian producers and the other five countries named in the complaint counter that they have a natural competitive advantage such as lower labor costs, availability of cheap land, and a more favorable climate, resulting in a higher yield per acre and permitting three harvests per year. In what many see as a bold move, the American seafood distributors Association-an organization representing supermarkets, shrimp processors, and restaurants- has supported Brazilian and other foreign producers, arguing that it is the southern shrimp alliance that is engaging in unfair trade practices. Describe the various rivalries depicted in this scenario, and then usethe five forces framework to analyze the industry.
Complete the following table and answer the accompanying questions.
At what level of the control variable are net benefits maximized?
What is the relation between marginal benefit and marginal cost at this level of the variable?
China's entry into the World Trade Organization (WTO) in 2001 created more competition between local and foreign firms, and also provided China greater access to the market for exports. This was particularly true in the market for rubber since, at the time, China was the world's second largest consumer of rubber (China is now the world's largest consumer of rubber). Shortly after joining the WTO, China eliminated its import quota on rubber. What impact do you think the import quota reduction likely had on the price of rubber and the quantity of rubber exchanged in China? What implications do you think the elimination of the quota on rubber had on China's social welfare?
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