1. BatesManor Furniture:

a) Given that

i) the average Bates.Manor sales in a retail store that carries their furniture is $75,000 at manufacturer's prices

ii) the typical retail furniture store has a gross margin of 60%

Evaluate the BatesManor dollar sales at retail prices in their average store. Describe your reasoning and state any assumptions you make.

b) As noted above, the gross margin of a furniture retailer is roughly
60%. In contrast the overall gross margin in a typical supermarket is 26%, with the category GM's ranging from 18% for "Meat, poultry and seafood" to 50% for "Bakery/Deli". Why are these Gross Margins so different in magnitude? Suggest reasons and show your conclusions.

c)
Consider that BatesManor has just hired a new consultant. The consultant has noted the more furniture that people buy (i.e. "the bigger the pie") the better the sales forecast for BatesManor. She has recommended that BatesManor greatly increase their advertising budget and focus their efforts on increasing the main demand (i.e. the "size of the pie") for furniture. Critically and carefully review this
proposed strategy and advise Mr. Bates. Explain your reasoning.

2. Parvaderm

a) Provide the revised figures in the Payoff Table below complete the evaluation for the five (5) EMV's. Show your logic and calculations.

Payoff Table

Low Estimate High Estimate
P = .3 P =.7
Aerosol Container

5 ½ Ounce Package $59,000 $130,000

10- Ounce Package -$35,000 $175,000

EMV =
5 ½ oz package

EMV =
10 oz package

Value of Perfect Information

EMV =
Certainty

EMV =
Best Alternative

EMV
Perfect Information =

Provide the above analyses is the test market (total cost of $40,000) economically justified? Describe carefully. Explicitly recognize your assumptions.

b) Write two 200-word memos to Ms. Phoebe Masters making the respective cases for

(i) the 5 ½oz package

(ii) the 10 oz. package.

i.e. you are to incorporate the analysis shown in (a) above to support each package size in the separate memos. Incorporate notions of risk preference (from Ms. Masters' point of view) into each memo.

President Obama has proposed an increase in national minimum wage from the present level of $7.25 to $9.00. Apply the principles of causation to determine this proposal from the differing perspectives of

1) a current minimum wage worker;

2) an employer of minimum wage workers;

3) a Union executive.

4) An investor in Macdonald's Corp.

Describe your reasoning