A supplier of metal aluminium serving a Coca-Cola bottler in a large country in Latin America builds a plant along with associated production equipment at an annualised investment cost of 28 million per year. The plant is located directly next to the Coca- Cola bottler's bottling factory, which economises on transportation costs. The marginal cost of producing a can is $0.3 per can. Under a proposed contract, Coca-Cola will pay the supplier $0.9 per can to produce 199 million cans per year. However, if the can supplier does not sell cans to the Coca-Cola bottler, its best available alternative is to sell cans to a Pepsi bottler. The Pepsi bottler would pay the same price for cans that Coca- Cola would pay and would buy the same number of cans. Even though the Pepsi bottler is the closest bottling operation to Coca-Cola's, it is located nearly 1,000 miles away, which makes the marginal cost to the can company of selling to Pepsi $0.4 per can For your answers, please do not answer in millions i,e, if your answer is 6500000 you say 6.5 Is there a relationship-specific investment in this case? Oyes Ono What is the can producer's rent under the contract with Coca-Cola? What is the can producer's quasi-rent? Suppose the Coca-Cola bottler and the can producer sign a contract at the price of $0.9 per can, but then the Coca-Cola bottler attempts to hold up the can producer. What is the smallest price the can producer would be prepared to accept from the Coca-Cola bottler?
A supplier of metal aluminium serving a Coca-Cola bottler in a large country in Latin America builds a plant along with associated production equipment at an annualised investment cost of 28 million per year. The plant is located directly next to the Coca- Cola bottler's bottling factory, which economises on transportation costs. The marginal cost of producing a can is $0.3 per can. Under a proposed contract, Coca-Cola will pay the supplier $0.9 per can to produce 199 million cans per year. However, if the can supplier does not sell cans to the Coca-Cola bottler, its best available alternative is to sell cans to a Pepsi bottler. The Pepsi bottler would pay the same price for cans that Coca- Cola would pay and would buy the same number of cans. Even though the Pepsi bottler is the closest bottling operation to Coca-Cola's, it is located nearly 1,000 miles away, which makes the marginal cost to the can company of selling to Pepsi $0.4 per can For your answers, please do not answer in millions i,e, if your answer is 6500000 you say 6.5 Is there a relationship-specific investment in this case? Oyes Ono What is the can producer's rent under the contract with Coca-Cola? What is the can producer's quasi-rent? Suppose the Coca-Cola bottler and the can producer sign a contract at the price of $0.9 per can, but then the Coca-Cola bottler attempts to hold up the can producer. What is the smallest price the can producer would be prepared to accept from the Coca-Cola bottler?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A supplier of metal aluminium serving a Coca-Cola bottler in a large country in Latin America builds a plant along with associated production equipment at an annualised
investment cost of 28 million per year. The plant
slocated directly next to the Coca- Cola bottler's bottling factory, which economises on transportation costs. The marginal cost
of producing a can is $0.3 per can. Under a proposed contract, Coca-Cola will pay the supplier $0.9 per can to produce 199 million cans per year. However, if the can supplier
does not sell cans to the Coca-Cola bottler, its best available alternative is to sell cans to a Pepsi bottler. The Pepsi bottler would pay the same price for cans that Coca- Cola
would pay and would buy the same number of cans. Even though the Pepsi bottler is the closest bottling operation to Coca-Cola's, it is located nearly 1,000 miles away, which
makes the marginal cost to the can company of selling to Pepsi $0.4 per can
For your answers, please do not answer in millions i,e, if your answer is 6500000 you say 6.5
Is there a relationship-specific investment in this case?
Oyes
Ono
What is the can producer's rent under the contract with Coca-Cola?
What is the can producer's quasi-rent?
Suppose the Coca-Cola bottler and the can producer sign a contract at the price of $0.9 per can, but then the Coca-Cola bottler attempts to hold up the can producer. What is the
smallest price the can producer would be prepared to accept from the Coca-Cola bottler?
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