ECP 5705 ECP5705 Week 7 Individual Work 1 (Everest University)
ECP 5705 Week 7 Individual Work 1 (Everest University)
Not only must a manager understand how costs relate to the final product, but he must also understand the circumstances in which costs may change, and what must be done when this happens. In this assignment, consider what happens when costs increase due to a natural disaster, and when companies have the leverage to pass those increased costs along to consumers.
For this assignment, refer to the concepts from Chapter 13.
In Managerial Economics, read the case “Passing Along Costs” starting on page 369.
Answer Questions 1-3 on page 369.
1. Suppose the price of coffee beans increases by $0.20 per pound. What is the effect of this raw material price increase on the demand for roasted coffee? If one pound produces 50 cups of coffee, would the price of a cup of coffee rise by $0.01?Explain.
2. The article reports that J.M. Smucker Co. plans to increase its coffee prices by 9 percent. If Smucker has a lot of rivals but has a brand name that has value, will this 9 percent increase in retail prices imply that profit will rise by 9 percent?
3. Is it optimal for a firm to slash prices to retain market share? Is cutting prices during a recession and then raising them in a recovery a good strategy?