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Managers at the Ridgeway Corporation produce a medical device that they

sell in Japan, Europe, and the United States. Transportation costs are a

negligible proportion of the product’s total costs. The price elasticity of

demand for the product is -4.0 in Japan, -2.0 in the United States, and

-1.33 in Europe. Because of legal limitations, this medical device, once

sold to a customer in one country, cannot be resold to a buyer in another

country. a. The firm’s vice president for marketing circulates a memo recommending

that the price of the device be $1,000 in Japan, $2,000

in the United States, and $3,000 in Europe. Comment on his

recommendations. b. His recommendations are accepted. Sales managers send reports to

corporate headquarters saying that the quantity of the devices being

sold in the United States is lower than expected. Comment on their

reports. c. After considerable argument, the U.S. sales manager agrees to lower

the price in the United States to $1,500. Is this a wise decision? Why or

why not? d. Can you be sure that managers are maximizing profit? Why or why not?

 

 
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Ann McCutcheon is hired as a consultant to a firm producing ball bearings.

This firm sells in two distinct markets, each of which is completely sealed off

from the other. The demand curve for the firm’s output in the first market is

P1 = 160 – 8Q1, where P1 is the price of the product and Q1 is the amount

sold in the first market. The demand curve for the firm’s output in the second

market is P2 = 80 – 2Q2, where P2 is the price of the product and Q2 is the

amount sold in the second market. The firm’s marginal cost curve is 5 + Q,

where Q is the firm’s entire output (destined for either market). Managers ask

Ann McCutcheon to suggest a pricing policy.

a. How many units of output should she tell managers to sell in the second

market? b. How many units of output should she tell managers to sell in the first

market? c. What price should managers charge in each market?

wwnorton.com/studyspace.

 

 
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The Lone Star Transportation Company hauls coal and manufactured goods.

The demand curve for its services by the coal producers is PC = 495 – 5QC where PC is the price (in dollars) per ton-mile of coal hauled and QC is the number of ton-miles of coal hauled (in thousands). The demand curve for its services by the producers of manufactured goods is

PM = 750 – 10QM where PM is the price (in dollars) per ton-mile of manufactured goods hauled,

and QM is the number of ton-miles of manufactured goods hauled (in thousands).

The firm’s total cost function is TC = 410 + 8(QC + QM)

where TC is total cost (in thousands of dollars).

a. What price should managers charge to haul coal?

b. What price should managers charge to haul manufactured goods?

c. If a regulatory agency were to require managers to charge the same price

to haul both coal and manufactured goods, would this reduce the firm’s

profit? If so, by how much?

 

 
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Consider Peter Gibbons, an employee of the fictional Initech Corporation from the movie Office Space. Peter has been asked to meet with efficiency experts (Bob and Bob) to discuss his work environment. One of the Bobs is curious about Peter’s tendency toward underperformance and confronts him about his lack of attention to office policies and procedures. It seems Peter has been turning in his TPS reports late and without the companymandated cover sheet: Peter: You see, Bob, it’s not that I’m lazy, it’s that I just don’t care. Bob: Don’t? Don’t care? Peter: It’s a problem of motivation, all right? Now if I work my butt off and Initech ships a few extra units, I don’t see another dime, so where’s the motivation? And here’s another thing, I have eight different bosses right now. Bob: Eight? Peter: Eight, Bob. So that means when I make a mistake, I have eight different people coming by to tell me about it. That’s my only real motivation, not to be hassled, that and the fear of losing my job. But you know, Bob, that will only make someone work just hard enough not to get fired. The environment at Initech is an all too familiar one to many office workers. It is an environment in which success is directly proportional to how busy you look, where questioning authority is taboo, and where meticulous attention to paperwork is the only way to get promoted. Contrast Initech to The Coffee Bean—a chain of gourmet coffee shops. In an effort to boost employee morale and increase productivity, the management team at The Coffee Bean decided to pursue the FISH philosophy. FISH is a management training program that stresses fun in the workplace. It espouses four principles: Play—“Work that is made fun gets done.” Make Their Day—“When you make someone’s day through a small act of kindness or unforgettable engagement, you can turn even routine encounters into special memories.” Be There—“Being there is a great way to practice wholeheartedness and fight burnout.” Choose Your Attitude—“When you learn you have the power to choose your response to what life brings, you can look for the best and find opportunities you never imagined possible.” Stores in The Coffee Bean chain were encouraged to use these principles to make the stores a fun place for employees and customers. The stores have created theme days where employees dress up for themes (NFL day, basketball day, pajama day)—and then give discounts to customers who dress the same. There are also trivia games in which customers who can answer trivia questions get discounts on their coffee purchases. Nancy Feilen, a Coffee Bean store manager, explains, “We tried to come up with something that would help strike up a conversation with guests and engage fun in the stores for team members and guests.” In other stores, customers play Coffee Craps. If a customer rolls a 7 or an 11, he gets a free drink. Some stores have used Fear Factor Fridays: if the store sells a certain number of drinks, one of the baristas will agree to some act—in one case a barista ate a cricket. The results? One store increased the average check by 12 percent in six months; turnover has decreased significantly—general managers typically left after 22 months with the chain but now stay an average of 31 months; and the turnover rate for hourly employees dropped to 69 percent from more than 200 percent over a three-year period. So where would you rather work? 1. How would you gauge Peter’s achievement orientation? What are some of the needs not being met for Peter Gibbons at Initech? What changes might improve Peter’s motivation? 2. Would you judge the leaders at Initech as more likely to invoke the Pygmalion or the Golem effect? What about the environment at The Coffee Bean—Pygmalion or Golem effect? 3. Why has The Coffee Bean seen such a significant reduction in its turnover?

 

 
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