Question 8 Please calculate Inditex production costs in comparison to its competitors who outsourced to Asia. Assume Asian production is 20% more expensive than European production (page 11 of the case suggests it is 15% to 20% more expensive). Thus if it produced all its garments in Europe, Inditex would be 20% more expensive than its competitors. But note that Inditex doces not produce 100% of its garments in Europe (see page 11 second para). Thus its production costs would be lower than the maximum 20% depending on the proportion of production in Europe. Using data from the case on the proportion of garment production in Europe Inditex production costs are . than competitors. There is insufficient data in the case 15% higher O 16% higher O 10% higher
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- Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firm—Tile King. Ajax produces a multiheaded tunnel wall scrubber that is similar to a model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the possibility of a price war. The pnce charged by Tile King is $20,000. Ajax has the following short-run cost curve: TC=800,0005,000Q+100Q2 Compute the marginal cost curve for Ajax. Given Ajaxs pricing strategy, what is the marginal venue function for Ajax? Compute the profit-maximizing level of output for Ajax. Compute Ajaxs total dollar profits.onsider the table below and assume the market price is $35 per unit. Totalproduct Totalfixed cost TotalVariablecost 0 150 0 1 150 50 2 150 75 3 150 112.4 4 150 150 5 150 200 6 150 270 7 150 360 8 150 475 9 150 620 10 150 800 Now assume there are 600 identical firms in this industry, that is, there are 600 firms, each of which has the same cost data as the single firm discussed above. Suppose, too, that the demand curve for this industry is as follows: Price Quantitydemanded $20 6,800 30 5,975 45 5,500 60 5,125 75 4,500 95 4,200 120 3,600 150 2,400 In equilibrium each firm will realize: Multiple Choice an economic profit of $155. a loss of $45. an economic profit of $35. a loss of $135.As CEO of J&J, a huge pharmaceutical company, you and your management team face the decision of whether to undertake a $150 million R&D effort to create a new mega-medicine. Your research scientists estimate that there is a 35 percent chance of successfully creating the drug. Success means securing a worldwide patent worth $500 million (implying a net profit of $350 million). However, firm BigMed (your main rival) has just announced that it is spending $100 million to pursue the development of the same medicine (by a scientific method completely independent of yours). You judge that BigMed’s chance of success is 40 percent. Furthermore, if both firms are successful, they will split equally the available worldwide profits ($250 million each) based on separate patents. Assume that firms J&J and BigMed are risk neutral. Use decision trees and the expected profits criterion to justify your answer for the following problems. Should firm J&J undertake the R&D effort to…
- KidzPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. James, who owns and runs KidzPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume James has no fixed costs, and his cost of producing each portrait is $12. Customer Reservation Price ($ per photo) 1 50 2 46 3 42 4 38 5 34 6 30 7…Dr. Heinz Doofenshmirtz and Perry the Platipus have decided to venture into farming. They both participated in the venture eqully well, so at the end of the year, their farm produced five geese, each laying golden egs. Perry and Dr. Doof have to decide how to divide these five geese among themselves -- there are no market where they could sell them and there is not sharing or time-share arrangements possible. In other words, either they use the goose or loose it. Evidently, they cannot split an egg-laying goose in half.(a) Give an example of economically efficient allocation of golden egg laying geese between Perry and Dr. Doof. Briefly explain why the allocation you provide is efficient. (b) Give an example of an allocation of geese between the two that you think is fair (equitable). Briefly explain why it is fair in your opinion. (c) If the allocation in (a) is not the same as the one in (b), is it possible to come up with an allocation of geese that would be both efficient and…As CEO of firm A, you and your management team face the decision ofwhether to undertake a $200 million R&D effort to create a new megamedicine.Your research scientists estimate that there is a 40 percentchance of successfully creating the drug. Success means securing aworldwide patent worth $550 million (implying a net profit of $350million). However, firm B (your main rival) has just announced that it isspending $150 million to pursue development of the same medicine (bya scientific method completely independent of yours). You judge that B’schance of success is 30 percent. Furthermore, if both firms aresuccessful, they will split equally the available worldwide profits($275 million each) based on separate patents.a. Given its vast financial resources, firm A is risk neutral. Should firm Aundertake the $200 million R&D effort? (Use a decision tree to justifyyour answer.)b. Now suppose that it is feasible for firm A to delay its R&D decisionuntil after the result of B’s…
- Complete the table below and graph the AR, MR, MC, and AC Q Price TR AR MR TC MC Profit 0 30 0 0 0 70 -70 5 27 135 27 27 135 0 10 24 240 24 21 197 43 15 21 315 21 15 252 63 20 18 360 18 9 300 60 25 15 375 15 3 345 30 30 12 360 12 -3 383 -23 35 9 315 9 -9 428 -113 40 6 240 6 -15 478 -238 45 3 135 3 -21 533 -398 50 0 0 0 -27 593 -593 Provide a brief explanation of the firm's behavior to set production at 20 units at the price of P18 per unit.There are only two driveway paving companies in a small town, Asphalt, Inc. and Blacktop Bros. The inverse demand curve for the services is ? = 2040 − 20?where quantity is measured in pave jobs per month and price, in dollars per job. The firms have an identical marginal cost of $200 per driveway. If the two firms collude, splitting the work and profits evenly, how many driveways will each firm pave, and at what price? How much profit will each firm make? Does Asphalt have an incentive to cheat by paving one more driveway each month? Show it numerically.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 razor
- Suppose the European Union (EU) is investigating a proposed merger between two of largest distillers of premium Scotch liquor. Based on estimates from the EU’s economists, these two firms have a combined market share of about two-thirds of all sales in the relevant market. The only remaining firm controls the other one-third of the market. Economists have estimated that the wholesale market price elasticity of demand for Scotch is −1.3 and the unit cost to produce and distribute the Scotch is 16.20 per liter. Using the available information, provide quantitative estimates of the pre- and post-merger prices for Scotch in the wholesale market. In your opinion, is the EU’s concern about the merger justified? Why or Why not?TotsPoses Inc., a profit-maximizing business, is the only photography business in town that specializes in portraits of small children. George, who owns and runs TotsPoses, expects to encounter an average of eight customers per day, each with a reservation price (shown in the following table). Assume George has no fixed costs, and his cost of producing each portrait is $12. a. How much should George charge if he must charge a single price to all customer? At this price, how many portraits will George produce each day? What will be his economic profit? b. How much consumer surplus is generated each day at this price? c. If George is very experienced and knows the reservation prices of each customer, how many portraits will he produce each day and how much economic profit will he earn? d. Assume George charges only 2 different prices. He know that customers with reservation prices above $30, will never use coupons and the customers with reservation prices below will always use…A company, say Afghan Saffron, is considering entering the Iranian’s market which is dominated by its principal rival, say Iranian Saffron. Clearly, Afghan Exporters decision to enter or not will be judged on the potential profitability of such a move. This, in turn, depends upon the way Iranian will react to such a business move by Afghan Exporters. If Iranian reacts aggressively by launching a big commercial campaign, then an entry by Afghan Saffron Exporters will result to a loss of $2.8 million for Afghan Saffron Exporters and a loss of $2.2 million for Iranian Manufacturers. If, on the other hand, Iranian accommodates Afghan Saffron exporter’s entry, then both Afghan and Iranian will be making profits of $1 million and $1 million, respectively. Finally, if Afghan Exporter does not enter the market at all, then Iranians will be making monopoly profits of $3.5 million”. Requirements: a) What would you do if you were the CEO of Afghan Saffron Exporter and Why, Explain briefly-use any…