Day: November 3, 2020

Answer the following questions in your text and submit the answers and any supporting spreadsheets to the Week Four Dropbox.

Application Question 3, page 194

3- The following facts characterize the furniture industry in the United States:39

39 James R. Hagerty and Robert Berner, Ever Wondered Why Furniture Shopping Can Be Such a Pain? Wall Street Journal, November 2, 1998; Dan Morse, U.S. Furniture Makers Seek Tariffs on Chinese Imports, Wall Street Journal, November 3, 2003; and Mark H. Drayse, Globalization and Regional Change in the U.S. Furniture Industry, Growth and Change 39 (June 2008): 25282.

a- The industry has been very fragmented, so that few companies have the financial backing to make heavy investments in new technology and equipment.

b- In 1998, only three U.S. furniture manufacturers had annual sales exceeding $1 billion. These firms accounted for only 20 percent of the market share, with the remainder split among 1,000 other manufacturers.

c- Capital spending at one manufacturer, Furniture Brands, was only 2.2 percent of sales compared with 6.6 percent at Ford Motor Company. Outdated, labor-intensive production techniques were still being used by many firms.

d- Furniture manufacturing involves a huge number of options to satisfy consumer preferences, but this extensive set of choices slows production and raises costs.

e- Small competitors can enter the industry because large manufacturers have not built up any overwhelming advantage in efficiency.

f- The American Furniture Manufacturers Association has prepared a public relations campaign to encourage consumers to part with more of their disposable income on furniture.

g – In fall 2003, a group of 28 U.S. furniture manufacturers asked the U.S. government to impose antidumping trade duties on Chinese-made bedroom furniture, alleging unfair pricing.

h- The globalization of the furniture industry since the 1980s has resulted from technological innovations, governmental implementation of economic development strategies and regulatory regimes that favor global investment and trade, and the emergence of furniture manufacturers and retailers with a capacity to develop global production and distribution networks. The development of global production networks using Chinese subcontractors has accelerated globalization in recent years.

Application Question 4, page 229

The following discussion describes recent changes in the strategy of Parker Pen Co.80

80 Cameron McWhirter and Laurie Burkitt, In China, the Pen Is Mightier When Its Pricier, Wall Street Journal (Online), November 2, 2011.

Although consumer interest in fine writing pens in the United States may seem equivalent to consumer response to Kodak film and cameras in the opening case of this chapter, Parker Pen Co., which is owned by Newell Rubbermaid Co., developed a strategy to build its presence in China where there is increased income and strong preferences for fine writing pens as part of Chinas gift-giving business culture. Executives in other parts of the world may have substituted smartphones and tablets for expensive pens, but Chinese professionals are often willing to pay thousands of dollars for them. In response, Parker Pen Co. has darkened its pens ink to appeal to writers of Chinese characters and added a special Chinese character meaning prosperity and good luck to the pens heads. These changes have increased sales from 30% to 50% in many of Chinas department stores.

The number of Chinese earning a household income of more than one million yuan (approximately $156,000) increased 20% from 2010 to 2011. Pens are an affordable luxury, but also serve as a means for people to display their new wealth. Parkers pens sales had been declining in North America and Europe, so the company turned to China and adopted a higher pricing policy to emphasize the status of the pens. Parker does have competition for its expensive pens from Montblanc, which has opened stores to sell its pens and other products. However, Parker pens contribute substantially to overall sales growth for Newell Rubbermaid.

a- Discuss the role of consumer demand in influencing Parker Pens strategies.

b – Do you think Parker will be able to maintain its market power in China? Explain.

Production and costs are the primary building components on the supply side of the market.  From the previous week we know that consumer behavior forms the basis for the demand curves. This week we will look at how production behavior by firms is behind the supply curve. A critical part of production decisions is profit. Many people think of profit in the terms of accounting profit, i.e., the difference between revenues from sales and the cost of production. However, when managers make production decisions they also look at economic profit that, unlike accounting profit, takes into consideration the costs of foregoing an investment in another activity (referred to as opportunity costs).

1 – Provide an example (preferably from an actual business operation) that demonstrates the differences in economic profit and accounting profit. You should include opportunity costs (explicit and implicit) in the comparison. Using your actual profit calculations explain why there is a difference in the bottom-line measured profits and why it is important to look at both.

When we talked about production and costs we need to recognize that managers face more decisions in the long run. Why? Because it is possible changes can occur in the combinations of inputs used in the production process. Because of the possibilities of these changes long run decisions are focused on minimizing the costs of production. An important consideration in minimizing these costs is the strategy of economies of scale defined as creating a lower unit cost by implementing a larger scale of production. This means that the average costs of production are lowered as the production is at larger output levels. For the second part of this discussion.

2- Identify and discuss the primary factors that are necessary to achieve economies of scale.

Answer the following questions in your text and submit the answers and any supporting spreadsheets to the Week Three Dropbox.

Application Question 3, page 141

The following discussion describes a new inventory system used by J. C. Penney39:

39 Gabriel Kahn, Made to Measure: Invisible Supplier Has Penneys Shirts All Buttoned Up, Wall Street Journal, September 11, 2003.

In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style.

The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penneys shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailers warehouses and corporate decision makers.

Discuss how this case illustrates the concept of the opportunity cost of capital.

How does this innovation also help in demand management?

Application Question 1, page  168

Discuss how the examples in the opening case show how the choices facing a firm making a long-run decision on plant location are much greater than those for a firm with a plant already in operation. Why is the long run considered to be a planning horizon?

Answer the following questions in your text and submit the answers and any supporting spreadsheets to the Week Two Dropbox. Your responses must show depth and breadth of the applied economic concepts.

Application Question 6, page 85

Why would we expect that the price elasticity of demand for the product of an individual firm would typically be greater than the price elasticity of demand for the product overall? Illustrate your answer with examples from this chapter.

Application Question 3, page  112

Explain what types of biases arise in the different approaches to understanding consumer demand and behavior.