1. A popular restaurant charges lower prices for alcoholic drinks in the late afternoon (4-6pm), but offers no such discounts at lunchtime or on weekends. What is different about demand characteristics for the same product at the same location but at different times on different days of the week? Does this pricing policy tend to increase the restaurant’s revenues?
(hint: think elasticities)
2. 2- The Commerce Department is considering lifting the ban on the import of Brazilian oranges (the world’s largest producer of oranges) into the United States. If a significant number of Brazilian oranges are allowed to be imported into the United States, explain the impact on the following:
a. The equilibrium quantity and price of oranges in the US
b. The equilibrium quantity and price of orange juice in the US
c. The equilibrium quantity and price of tangerines in the US (assuming tangerines are a substitutes for oranges)
3. Imagine you are an author of a book who gets a royalty payment of 10% of the total revenues from the sale of the book. You get a phone call from your publisher telling you they are increasing the price of your book from $25 to $30. Should you be happy about this? Why or Why not?
a. What assumptions are you making about the change in quantity demanded of the book in your answer?
b. What elements/characteristics of the book will determine whether your assumption is valid?
4. Between World War I and World War II, the cotton textile industry was one of the most competitive industries in the US. Cotton textiles were a homogenous product, there were many buyers and sellers and free entry and exit.
Research showed that the return on investments in the cotton textile industry was about 6% in the South and 1% in the North (due to higher labor costs). The average rate of return for ALL manufacturing industries was around 8%.
1. What would you expect to happen to the number of firms in the cotton textile industry in the long run? Would firms in the South or the North be equally affected? Why?
After World War II, the US put restrictions on the import of cheaper textile imports.
2. What would you expect to happen to the profitability and number of firms in the US cotton textile industry in the long run? Explain why.
In the early 1990’s these trade restrictions were lifted.
3. What would you expect to happen to the profitability and number of firms in the US cotton textile industry in the long run? Explain why.
5. This question has 3 parts. Please answer all of them.
a. Why are clothes with designer labels so much more expensive than ‘own brand’ clothes from a chain store, even though they may cost a similar amount to produce?
b. Why do the prices of fresh vegetables fall when they are in season? Could an individual farmer prevent the price from falling?
c. If the price of frozen yogurt falls, the price of ice cream is likely to rise. True or False? Why?
6. Market approval in the US for new pharmaceutical products is a long, arduous, and expensive process. Once approved, patent protection keeps close substitute products from entering for some years.
a. If the demand for a particular product is stable, what would you predict for the profitability after approval and prior to patent expiration? Why?
b. What would you predict for the profitability of pharmaceuticals products after the patent expires? Why?
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