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Chapter 13: Problem 3
If Daniel sells 350 hamburgers at a price of \(\$ 3.25\) each, and his average cost of producing 350 hamburgers is \(\$ 3.00\) each, what is his profit?
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In \(1916,\) Ford Motor Company produced 500,000 Model T Fords, at a price of \(\$ 440\) each. The company made a profit of \(\$ 60\) million that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model \(\mathrm{T}\) to \(\$ 360\), and he expected to sell 800,000 cars at that price. Ford said, "Less profit on each car, but more cars, more employment of labor, and in the end we get all the total profit we ought to make." a. Did Ford expect the total revenue he received from selling Model Ts to rise or fall following the price cut? b. Use the information given above to calculate the price elasticity of demand for Model Ts. Use the midpoint formula to make your calculation. (See Chapter 6 , page \(186,\) if you need a refresher on the midpoint formula.) c. What would the average total cost of producing 800,000 Model Ts have to be for Ford to make as much profit selling 800,000 Model Ts as it made selling 500,000 Model Ts? Is this smaller or larger than the average total cost of producing 500,000 Model Ts? d. Assume that Ford would make the same total profit when selling 800,000 cars as when selling 500,000 cars. Was Henry Ford correct in saying he would make less profit per car when selling 800,000 cars than when selling 500.000 cars?
What is the difference between zero accounting profit and zero economic profit?
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?
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?
In 2008 , Gogo became the first company to offer Wi-Fi service on commercial aircraft. It provides the service primarily through ground-based cellular towers. Many air travelers find the \(\$ 30\) price Gogo charges on a cross- country flight to be very high because the speeds offered are too slow to stream movies or other content. Gogo faces competition from newer services that use satellites rather than ground-based towers, which enables them to offer much higher speeds at half the price Gogo charges. According to an article in the Wall Street Journal, in late 2016 , Gogo was "rolling out an advanced satellite-based network" that would allow it to offer higher speeds at a lower price. A number of airlines, though, were considering switching to competing services. a. Will copying its competitors by offering a faster, lower-priced service likely allow Gogo to recapture its market share? b. Unlike its competitors, Gogo had to spend substantial amounts to build a network of ground-based cellular towers. It has to abandon those towers as it switches to a satellite-based network. Is the cost of those towers a disadvantage to Gogo as it competes with the new firms entering the industry? Briefly explain.
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