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Demand elasticity and scale on scope economics

1 George has been selling 5,000 T -shirts per month for $8.50. When he increased the price to $9.50, he sold only 4,000 T- shirts. What is the demand elasticity? If his marginal cost is $4.00 per shirts, what is the desired markup and what is his initial actual markup? Was raising the price profitable?

2 The variety of Riverside Ranger logo T -shirts includes 12 different designs. Setup between designs takes one hour (and $18,000), and after setting up, you can produce 1,000 units of a particular design per hour (at a cost $8,000). Does this production exhibit scale economies or scope economies.

3 Why might intangible resources like human capital and intellectual assets be a more likely source of sustainable competitive advantage than tangible resources?

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1. George has been selling 5,000 T -shirts per month for $8.50. When he increased the price to $9.50, he sold only 4,000 T- shirts.
a. What is the demand elasticity?
Level 1 Level 2 % Change
Quantity 5,000 4,000 -20%
Price $8.5 $9.5 12%
Price Elasticity of demand (1.7) =(-20%/12%) * 100%

b. If his marginal cost is $4.00 per shirts, what is the desired markup and what is his initial actual markup?
Marginal cost $4.0
Selling price $8.5
Desired Mark-up 112.5% =($8.5 - $4.0)/$4.0

c. Was raising the price profitable?
Level 1 Level 2 Change
Price $8.5 $9.5 ...

Solution Summary

Demand elasticity and sales on scope economics are examined. Why intangible resources like human capital and intellectual assets are determined.

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