Chapter 1, Problem 1.1EC

Why do fine dining establishments must have very high markups over the cost of their foods? Is it possible to be low-priced fine dining establishment?

People often convey the idea behind MM’s proposition 1 by various supermarket analogies, for example, “The value of a pie should not depend on how it is sliced,” or, “The cost of a whole chicken should equal the cost of assembling one by buying two drumsticks, two wings, two breasts, and so on.” Actually proposition 1 doesn’t work in the supermarket. You’ll pay less for an uncut whole pie than for a pie assembled from pieces purchased separately. Supermarkets charge more for chickens after they are cut up. Why? What costs or imperfections cause proposition 1 to fail in the supermarket? Are these costs or imperfections likely to be important for corporations issuing securities on the U.S. or world capital markets? Explain.

In it's recent published Global Responsibility Report, Starbucks describes its goals, achievements and shortcomings related to corporate social responsibility.  What implications does Starbucks' commitment to corporate social responsibility have for the standard cost of a cup of coffee?

Ceylon Coffee Vendors PLC is a company that installs and supplies coffee vending machines in offices, schools and at petrol stations. They were the first coffee vending machine company to sell fair trade coffee. and they have a brand image on ethical activities. However, sales have been declining for many years as many consumers have switched to purchasing better quality coffee from the growing number of coffee shop chains. The marketing director, Mr. Thomas, has been investigating the market for disposable coffee cups that are fully recyclable as the contribution made by the manufacturing industry growing and trading to environmental and social issues. The cups are manufactured from a combination of paper and coated in Polylactic Acid-Based plastic to make them waterproof. He believes that this would allow Ceylon Coffee Vendors PLC to sell to the big coffee shop chains, to exploit the benefits from the growth in this market. The initial cost of the expansion will be Rs. 3.3…

Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to Select one: a. gain a market share and make up the loss in margin through increased sales. b. gain a market share and make up the loss in margin through increased pricing. c. create higher value creation and thus generate greater profit margins. d. create higher value creation and thus generate greater sales.

The manager of Sunshine bakery is disappointed with the reported net income for the period. The bakery recorded a loss for the period. The manager does not understand how demand can be so high for baked goods but profits low. Suggest reasons why the bakery high demand may not lead to profit. Recommend the type of analysis that should be done to pinpoint the problem.