Require assistance with an economic question
During the management group meeting Thompson says, "having our won show rooms and sales force is the price of being in the game - without them our growth will be limited". (below) How would you interpret Thompson's "price" strictly from an economics standpoint? Read carefully the entire conversation below, and explain why paying this price may or may not be desirable from the company's standpoint? Draw a suitable diagram if necessary, and assume a negatively sloped demand curve for Caron's furniture products in the US that does not shift over time. [Hint: think in terms of shifts of different cost curves and their effects]
1. When Thompson says "having our won show rooms and sales force is the price of being in the game - without them our growth will be limited" what he means is that there is an opportunity cost involved with every transaction, including the present one. Opportunity cost is defined to be the cost of the highest valued alternative foregone to perform some action. In this case the opportunity cost of expansion in the US market is the reduced expansion in the Canadian market. No company, including the one under consideration, has access to unlimited resources, and any effort to increase presence in the US market will come at the cost of the presence in the largest market for the company which happens to be the Canadian market. In the case study they talk about 201% growth in the US sales of the company, and in the same duration Canadian sales rose by 213% (see page 10). Given that the base of start was higher in Canada the company has performed much better in Canada than in the US.
Now when the company decides to invest and try to garner further access to the American market that will come at a cost of lower attention to the Canadian market. This is the ...
This job explores shifts of different cost curves and their effects.