1. G.R. Dry Foods Distributor specializes in the wholesale distribution of dry goods, such as rice and dry beans. The firm's manager is concerned about an article he read in this morning's WSJ. The article indicated that the incomes of individuals in the lowest income bracket are expected to increase by 10 percent over the next year. While the manager is pleased to see the group doing well, he is concerned about the impact this will have on the business. What is likely to happen to the price of the products G.R. Dry Foods sells and why? Be sure to include a brief discussion of the topic and why it is that particular discussion. Also, explain the short-term versus long-term decision, if applicable.
2. The owner of a small chain of gasoline stations in a large Midwestern town read an article in a trade publication that the price-elasticity-of-demand for gasoline in the U.S. is -0.2. Because of this, he is thinking about raising prices to increase revenues and profits. He has asked for your recommendation on this strategy. What would you recommend, and why? Show any calculations you determined. Explain why elasticity is important for business decision making.
3. Suppose a CEO's goal is to increase profitability and output from her company by bolstering its sales force and that it is known that profits as a function of output are p = 40q- 2q2 (in millions of US dollars). Graph the profit function. Compare and contrast output and profits using the following compensation schemes, based on the assumption that sales managers view output and profits as "goods":
a. The company compensates sales managers solely based on output.
b. The company compensates sales managers solely based on profits.
c. The company compensates based on the combination of output and profits.
Provide all calculations with the comparison and contrast discussion.
4. In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (without pay) from her $5,000-per-month job in order to operate a kiosk that sold fresh drinking water. During the month she operated this venture, she paid the government $2,500 in kiosk rent and purchased water from a local wholesaler at a price of $1.34 per gallon. If consumers are willing to pay $2.25 to purchase each gallon of fresh drinking water, how many units will she have to sell in order to turn a profit? Provide your calculations and explain how this can be applied to other businesses.
5. Last month, you assumed the position of manager for a large car dealership. The distinguishing feature of this dealership is its "no-hassle" pricing strategy; prices (usually well below sticker) are posted on the windows, and your sales staff has a reputation for not negotiating with customers. Last year, the company spent $2 million on advertisements to inform customers about its "no-hassle" policy and had revenues of $40 million. A recent study from an ad agency indicates that for each 3 percent increase in TV advertising expenditures, a car dealer can expect to sell 12 percent more cars, but that it would take a 4 percent decrease in price to generate the same 12 percent increase in units sold. Assuming the information is correct, should you increase or decrease your firm's level of advertising? Explain. Show all calculations and provide the reasoning as clearly and concisely as possible.
6. Based on the articles you read for class which one was the most important and why?