Problem 4
There are about 400 wineries in California's Napa Valley. Describe the reaction of consumers if the owner of one of the wineries- Chip Case's Wine Emporium-raises the price of his wine by \(\$ 5.00\) per bottle, assuming the following: a. The industry is perfectly competitive. b. The industry is monopolistically competitive.
Problem 4
7-Eleven, Inc., operates more than 20,000 convenience stores worldwide. Edward Moneypenny, 7 -Eleven's chief financial officer, was asked to name the biggest risk the company faced. He replied, "I would say that the biggest risk that 7 -Eleven faces, like all retailers, is competition ... because that is something that you've got to be aware of in this business." In what sense is competition a "risk" to a business? Why would a company in the retail business need to be particularly aware of competition?
Problem 5
A firm that is first to market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. For example, the ballpoint pens made by the Reynolds International Pen Company often leaked. What effect do such problems cause for the innovating firm, and how do these unexpected problems create possibilities for other firms to enter the market?
Problem 5
A student makes the following comment: I can understand why a perfectly competitive firm won't earn a profit in the long run because it charges a price equal to marginal cost. But a monopolistically competitive firm can charge a price greater than marginal cost, so why can't it continue to earn a profit in the long run?
Problem 5
In \(2016,\) Howard Shultz announced that he would step down as CEO of Starbucks to establish luxury coffee shops that would charge as much as \(\$ 12\) for a cup of coffee. Although some analysts questioned whether many consumers would be willing to pay such high prices for coffee, Erich Joachimsthaler, an executive at a brand-strategy consulting firm, believes the projects could be successful. Joachimsthaler compared the market for coffee to the market for beer, which has experienced competition from small craft breweries. "They [established companies such as Coors and Anheuser-Busch InBev] never protected themselves from the high end.... I think Starbucks sees that the middle is slowing down." a. Briefly explain what Joachimsthaler means by the "high end" and "the middle is slowing down." What relevance do his observations have for the success of Schultz's project? b. Briefly explain whether Schultz establishing luxury coffee shops illustrates: • Product differentiation • Marketing • Brand management
Problem 5
Purell announced that the new chemical formula for its hand sanitizer was so effective that "just 1 squirt of Purell Advanced Hand Sanitizer kills as many germs as two squirts of any other national brand." If Purell succeeds in convincing consumers that its claim is correct, would its demand curve become more elastic or less elastic? Briefly explain.
Problem 6
Wealthy investors often invest in hedge funds. Hedge fund managers use investors' money to buy stocks, bonds, and other investments with the intention of earning high returns. But a column in the Wall Street Journal noted that managers who earned a high return for a few years were "smart or lucky," and it can be difficult for investors to determine which they were. Is it ever easy to determine whether a firm making an economic profit is doing so because of the skills of the firm's managers or because of luck? Briefly explain.
Problem 6
Some companies have done a poor job protecting the images of their products. For example, Hormel's Spam brand name is widely ridiculed and is associated with annoying commercial messages received via e-mail. Think of other cases of companies failing to protect their brand names. What can companies do about the situation? Should the companies rebrand their products?
Problem 7
(Related to the Don't Let This Happen to You on page 458) A student remarks: If firms in a monopolistically competitive industry are earning an economic profit, new firms will enter the industry. Eventually, a representative firm will find that its demand curve has shifted to the left until it is just tangent to its average total cost curve and the firm is earning zero profit. Because firms are earning zero profit at that point, some firms will leave the industry, and the representative firm will find that its demand curve will shift to the right. In long-run equilibrium, price will be above average total cost by just enough so that each firm is just breaking even. Briefly explain whether you agree with this analysis.
Problem 7
JustFab is an online fashion retailer that analyzes information about customers obtained from its Web site to gauge the clothing they like most and the frequency of their purchases. This information has enabled the company to respond quickly to changes in fashion trends and to better control its inventory. The type of customer data JustFab gathers is not available to retailers that sell only in brickand-mortar stores. Briefly explain the contribution that JustFab's use of customer data can make to its marketing efforts.
