Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 1: Q11 (page 17)

Starbucks has $1 billion to invest. It can either purchase a rival coffee shop chain or build additional Starbucks shops. If Starbucks chooses to purchase the rival chain, what does that say about the relative profitability of purchasing and owning the rival's existing shops versus building additional Starbucks shops? Explain.

Short Answer

Expert verified

The relative profitability will be higher. The projected difference between the marginal benefit and marginal cost would be higher for purchasing a rival chain than setting up a new outlet.

Step by step solution

01

Meaning of relative profitability

Profitability is the difference between the marginal benefit and marginal cost of a project. Starbucks will study both projects and compare the marginal benefit and marginal cost associated with each project to determine the profitability it can gain from both.

02

The reason behind the choice of Starbucks

On comparing the profitability associated with both projects, the company will compare them to identify which project yields higher profitability. Starbucks will choose the project whose profitability will be higher than the other project.

In other words, the project whose relative profitability would be higher will be chosen by Starbucks over the other one. Thus, the decision of Starbucks to purchase the rival chain instead of setting up a new outlet shows that the relative profitability is higher for the former than the latter.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Potatoes cost Janice \(1 per pound, and she has \)5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth \(1.50, the second pound is worth \)1.14, the third pound is worth \(1.05, and all subsequent pounds are worth \)0.30 per pound, how many pounds of potatoes will she purchase? How many pounds will she purchase if she has only $2 to spend?

Referring to the table in problem 5, suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Now, assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. Now, draw a production possibilities curve that reflects technological improvement in the production of both goods.

Production Alternatives

Type of Production

A

B

C

D

E

Automobiles

0

2

4

6

8

Forklifts

30

27

21

12

0

How does the slope of a budget line illustrate opportunity costs and trade-offs? How does a budget line illustrate scarcity and the effect of limited incomes?

Make (a) a positive economic statement of your choice and then (b) a normative economic statement relating to your first statement.

Pham can work as many or as few hours as she wants at the college bookstore for \(12 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job at a café will pay her \)15 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her \(13 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her \)11.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free