Answers to Select End of Chapter Questions

Topics: Supply and demand, Economic surplus, Inverse demand function Pages: 5 (1387 words) Published: February 16, 2013
16. Since we have the profits from all three scenarios we just to compare the present values of each scenario. We do not need to subtract anything from the present value since the costs have already been subtracted from profits.

We can see that we have the highest present value of $290.87 when we use high advertising intensity. Therefore this is the recommended scenario.

Q2. This question deals with margin analysis, we will look at incremental revenues and costs and see whether they are worth it. On the revenue side we have an increase on 9807700, however we also have incremental costs of television airtime, ad development and a loss of $6000000 in another division

We can see that when we add up the incremental costs, they exceed the extra revenues by 317100. Therefore I do not recommend that this campaign to be undertaken.

Q21. Producer ---Producer. The Brazilian and five other producers are competing against the US Southern Shrimp Alliance. Both groups are competing to provide the customers with the best shrimps at the lowest cost. However currently the Brazilian Producers have an advantage with their lower labor, cheap land etc. Government and Market; According to the current scenario, the Brazilian Group would be choice of the market since they can produce it much cheaper. However, the Sourthern Alliance is trying to lobby the Government into imposing tariffs Brazilian Imports. Consumer Producer Rivalry; The American Seafood Distributors, which represent consumers of shrimp farming, are interested in having the lowest cost. They are supporting the Brazilians and can potentially choose not to buy from the US based shrimp farmers. Consumer – Consumer Rivalry; Is pretty low, since they have banded together to form the American Seafood Distributors. Five Forces Analysis: Shrimp Farming Industry

Power of Buyers; High
Buyers have formed the American Seafood Distributors, which means they can ask negotiate in bulk and choose whether they buy from one firm or not. They apparently have very low switching costs. Since shrimp is still shrimp wherever it came from, the price value combination becomes very important. Possible Government Intervention. Power of Suppliers; Low

The shrimp farmers procure their supply from the sea. And really the shrimps have very little choice in the matter. There is plentiful supply, although it depends upon the weather and climate, therefore geographically specific. Also the fishermen who fish for the shrimp or the people who work in the farms demand lower wages for Brazilians but relatively high for the US based on the labour laws. Competitive Intensity: High

Differentiation is low and competition is based primarily on price. There seems to be a high degree of concentration amongst the firms competing in the industry. Substitutes;
There are various substitutes available within the product class. Instead of shrimps, consumers could go for other seafood such as fish. Or they could also choose to go completely different route and avoid Seafood altogether. Entry; Medium

Economics of scale are necessary to harvest shrimps at a lower cost, and since there is bulk buying, network effects are also important. Q23. I would tell the owner that while owner did the right thing by incentivizing the manager, but the structure of the incentive needs to be changed. The owner has incentivized the manager to make sales, but has given no incentives to the manager to sell at a higher price. I would recommend that the owner should either set a minimum price on sales or, offer the incentive out of the profits e.g offer 2% of the profit on the sale which would ask.

Q11. In the first case, a drop in price of components represents a change in the factors of production. Therefore this will result in a change in the ‘quantity supplied’. This means that the supply curve will shift to the right. Since there is no change in the demand curve, this means that the price will fall. (exh...
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