Q2. Lab Made Liquid Nitrogen Ice Cream Laboratory is the first company introducing the made-to-order liquid nitrogen ice cream in Hong Kong. Their shops are located in Tsim Sha Tsui and Tai Hang where there are lots of shopping malls and food courts. Suppose after several months of operation, the company increases their prices of ice cream to a much higher level and hope to earn higher revenue as they are the first seller of made-to-order liquid nitrogen ice cream in Hong Kong. However, the fact was that they were suffered from the loss of revenue after increasing the price. Explain why this is possible with a diagram. (Ref: 151651)
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- Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, What is the right amount of variety? Can there be too many varieties of shoes, for example?Sleek Sneakers Co. is one of many firms in the marketfor shoes.a. Assume that Sleek is currently earning short-runeconomic profit. On a correctly labeled diagram,show Sleek’s profit-maximizing output and price,as well as the area representing profit.b. What happens to Sleek’s price, output, and profitin the long run? Explain this change in words, andshow it on a new diagram.c. Suppose that over time consumers become morefocused on stylistic differences among shoe brands.How would this change in attitudes affect eachfirm’s price elasticity of demand? In the long run,how will this change in demand affect Sleek’s price,output, and profit?d. At the profit-maximizing price you identified inpart (c), is Sleek’s demand curve elastic or inelastic?ExplainThink about firms such as the Coca Cola Company and PepsiCo who competeagainst each other in the monopolistically competitive market for soft drinks. Eachfirm produces a unique product, but each of these unique products is to some extenta substitute for the soft drinks produced by rival companies.Now imagine a situation where the firms within such a market are facing suchextreme competition that they are unable to make an operating profit. Characterisethis situation diagrammatically and explain what will happen to the market, payingparticular attention to the exit or entry of firms out of (or into) the market.
- For each of the following pairs of firms, explainwhich firm would be more likely to engage inadvertising.a. a family-owned farm or a family-ownedrestaurantb. a manufacturer of forklifts or a manufacturer of carsc. a company that invented a very comfortable razoror a company that invented a less comfortable razorIn California, let’s assume that Armando sells bagels in a monopolisticly competitive market. Armando compiled the data represented in the table below to determine the profit-maximizing quantity at which he should sell. What is Armando’s bagel store’s profit-maximizing quantity? Quantity Price TotalRevenue MarginalRevenue TotalCost MarginalCost 5 $21 $105 $21 $150 $30 10 $18 $180 $15 $160 $2 15 $16 $240 $12 $180 $4 20 $14 $280 $8 $220 $8 25 $11 $275 $1 $270 $10 30 $10 $300 $0 $330 $12 35 $8 $280 −$4 $400 $14There is much evidence that large firms with considerable market power (firms such asmonopolies) may not maximize profits but may pursue quite different objectives such asgrowth or sales revenue maximization. What are the arguments put forward to defendmonopoly? Name any 5 Generally, the aim of a business is to maximize profit. Which point should a firm operateat in order to achieve maximum profit? By making use of a graph indicate clearly the pointat which a firm makes maximum profit and a point where a firm increase their output inorder to enhance profit as well as well as the points where they should reduce theirproduction if they want to enhance profit
- Henry Potter owns the only wcU in town that pro-ducesclean drinking water. He faces the follO\\•ingdemand, marginal revenue, and marginal cost curves:Demand: P • 70 - QMarginal Revenue: MR • 70 - 2Q~arginal Cost: MC • lO + Qa. Graph these three curves. Assuming thatMr. Potter maximizes profit, what quantity docshe produce? What prioc does he charge? Showthese rcsuiiS on your graph.b. Mayor George Bailey, concerned about water con~sumcrs_. is considering a price ceiling that is10 percent below the monopoly price derived inpart (a). What quantity would be demanded atthis new price? Would the profit-maximizingMr. Potter produce that amount? Explain. (Hi11t:1hink about marginal cost.)c. George's Uncle Billy says that a price ceiling is abad idea because price ceilings cause shortages.Is he right in this case? What size shortage wouldthe prioc ociling create? Explain.d. George's friend Clarence, who is even more con~cerncd about consumers, suggests a price ceiling50 percent below the…As the new general manager of the Grand Palladium Jamaica luxury all-inclusive resort, youare assessing your pricing policies. Currently, the price of a weekend stay is $2,000 perguest. You estimate the marginal cost of serving a guest at $1,600, and while yourpredecessor unfortunately did not leave you data from the pricing experiments and testmarketing she performed, you do know that such experiments were done, and that yourpredecessor was competent.a. What is your best estimate of the elasticity of demand for a weekend stay at the GrandPalladium?b. Your learned that at the current price, the resort is only 80% full on the weekends.Remembering the sense of belonging that you experienced in a crowded subway duringthe rush hour, you contemplate lowering the price so the resort is completely full. What isyour back-of-the-envelope calculation for how much you need to lower the price?c. After some thought you cooled to the idea of full occupancy. Instead, you focused yourenergy and…Food prices in sports stadiums are notoriously high because there is a limit on the numberof vendors that can operate in the stadium, which is a barrier to entry. In 2017, the AtlantaFalcons, an American football team, lowered the barriers to entry by allowing more foodvendors into their stadium. If the market for food in the stadium follows our perfect marketassumptions, what might you expect happened after this change? Do not worry about theunderlying facts of each statement, only whether it makes economic sense given our model.(Select one or more.)(a) The price of food in the stadium decreased because of an increase in supply.(b) The price of food in the stadium decreased because of an increase in demand.(c) The quantity of food sold decreased because of a movement of the supply curve.(d) The quantity of food sold increased because of a movement along the demand curve.(e) Profit per vendor decreased because of lower food prices.(f) Profit per vendor increased because of greater…
- 3) Bookface, the largest online social media network in the world, is being sued for abusing market power and attempting to create a monopoly. To defend his company, its founder Zark Muckerberg claims that in the social media industry, users want to be on whichever platform their friends are, which makes the creation of monopolies inevitable. Prosecutors, however, disagree. They claim that Bookface has used its market power to drive small companies out of the market. a. Which side is right? b. Please discuss this phenomenon and its sources.Suppose you are the economic adviser ofa company producing three brands of mobile pnones;Nokia 10, Samsung X and iPhone 7. Suppose further that, your company currently sells 120units of iPhone Z at e800 per unit, 150 units of Samsung X at e800 per unit and 200 units ofNokia 10 at e100 per unit, but in a bid to maximize profit, the company's managing directorproposes an increase in price of Samsung X from e800 to e1000 per unit for which quantitydemanded is anticipated to fall from 150 to 100 units; iPhone Z from e800 to e 1200 per unitfor which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from100 to 200 per unit for which quantity demanded is expected to fall from 200 to 100 unitsUsing the mid-polint formula. compute the price elasticity of demand for each brand.From your answer in i, what is the type and economic interpretatiom of each brand'sii.value of elasticity.Profit is the incentive that drives our market economy. Firms make production, pricing, andhiring decisions based on their quest for profit. But what happens when a firm discoversthat it can make dramatically higher profits by stopping production altogether? In December2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such adecision.Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs andfound itself in the unique position of being an electricity consumer and, potentially, anelectricity reseller. By December 2000, Kaiser faced a difficult decision of continuing itscurrent aluminium production and profit levels, or closing the plant to dramatically increaseits profit by simply reselling its electricity.When making production decisions, firms must consider both their costs and revenues. Oneimportant concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation inSpokane, Washington, entered into a…