Chapter 12 Short Assignment

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Feb 20, 2024

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2.5 Suppose that you are a manager for a firm like EBC Brakes, which manufactures brakes for automobiles and motorcycles. Your company has two plants, one in the United States and the other in the United Kingdom. The following tables include the estimated demand and marginal revenue for your brakes, along with the marginal costs at the two factories. a. What quantity and price maximize your firm’s profit? 110 units at a price of $190 maximize my firm’s profit, this is where MR=MC b. What is the profit-maximizing number of brakes produced in the U.S. plant? In the U.K. plant? 56 in the U.S and 54 in the U.K 3.7 Dollar stores like Dollar General do not pay customers’ transportation costs. Nonetheless, such stores have the incentive to minimize customers’ transportation costs. Why? Stores have the incentive to minimize a customer’s transportation costs because if for example they can decrease a customers’ transportation costs by $1 by locating nearer to the customer, the customer may be willing to spend up to $1 more when they visit the store. In addition, the value of customers’ time is an important aspect of their transportation costs. Customers will be willing to pay a higher price for products that have a lower cost in terms of their time. With that said, locating stores that decrease a customers’ transportation costs provides a competitive advantage. Therefore, stores should use marginal analysis and the stores should be located at the cost-minimizing locations when the marginal benefit from moving closer to the inputs is equal to customers’ marginal cost of transporting the products. Also, minimizing customer transportation costs can be less expensive than opening new locations which can be expensive to maintain and keep open. In addition, opening and operating new locations can lead to managerial diseconomies thus increasing costs and affecting profit.

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