Exam Two
Part One: Case Study Questions:
1. How will the entry of firms such as Apple, Google, Amazon, Hulu, and Comcast into the business of streaming movies affect Netflix? Why do some analysts question whether Netflix can survive against these competitors? To survive, what must Netflix do?
2. According to an article in the Wall Street Journal: In early January last year, after a disappointing Charismas season and amid worries about competition from discount retailers, Zale Corp. decided to shake things up: The self-proclaimed jeweler to Middle America was going to chase upscale customers....The move was a disaster. The Irving, Texas, retailer lost many of its traditional customers without winning the new ones it coveted. (From Ann Zimmerman and Kris Hudson, "Chasing Upsale Customers Tarnishes Mass-Market Jeweler," Wall Street Journal, June 26, 2006. P. A1.
Why would a firm like Zale abandon one market niche for another market niche? We know that in this case the move was not successful. Can you think of other cases where the company successful changed its business strategy?
3. A state law in California makes it illegal for businesses to charge men and women different prices for dry cleaning, laundry, tailoring, or hair grooming. The state legislator who introduced the law did so after a dry cleaner charged her more to have her shirts day-cleaned than to have her husband's shirts dry-cleaned:"they charged me $1.50 for each of his, and he wears an extra large. They charged $3.50 for each of mine, and I wear a small.' According to a newspaper article, "the dry cleaning proprietor told her that the price difference stemmed from the need for hand ironing her shirts because automatic presses are not made to handle small-sized women's garments." The law proved difficult to enforce, with many dry cleaners continuing to ignore it years after it was passed.
a. Was the dry cleaner practicing price discrimination, as defined in the textbook? Briefly explain.
b. As an economist, do you support laws like this one? Briefly explain.
Part Two: Problem Solving Question:
4. The Demand and Cost function for a company are estimated to be as follows:
+4Q
+28Q+3Q^2
What price should the company charge if it wants to maximize its profit in the short run? (Graphs are not required)