Question

1A) A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China.

	a.	Marginal revenue from selling tennis shoes to the Chinese retailer is greater than its marginal cost.
	b.	Marginal revenue from selling tennis shoes to the Chinese retailer is less than its marginal cost.
	c.	Marginal revenue from selling tennis shoes to the Chinese retailer is equal to its marginal cost.
	d.	Marginal revenue from selling tennis shoes to the Chinese retailer is not provided in the question above

1B)

A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Should the chose company sell tennis shoes to the Chinese retailer?

	a.	Yes.
	b.	No.

1C)

A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Suppose the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes and 50,000 pairs of tennis shoes in total, of which 40,000 pairs of running shoes and 45,000 pairs of tennis shoes can be sold to domestic retailers. How many pairs of running shoes would you allocate to the domestic market if the Chinese retailer offers to purchase 15,000 of running shoes?

	a.	60,000 pairs
	b.	45,000 pairs
	c.	40,000 pairs
	d.	15,000 pairs

1D)

A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Suppose the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes and 50,000 pairs of tennis shoes in total, of which 40,000 pairs of running shoes and 45,000 pairs of tennis shoes can be sold to domestic retailers. How many pairs of running shoes would you allocate to the Chinese market if the Chinese retailer offers to purchase 15,000 of running shoes?

	a.	0 pairs
	b.	10,000 pairs
	c.	15,000 pairs
	d.	5,000 pairs

1E)

A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Suppose the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes and 50,000 pairs of tennis shoes in total, of which 40,000 pairs of running shoes and 45,000 pairs of tennis shoes can be sold to domestic retailers. How many pairs of tennis shoes would you allocate to the domestic market if the Chinese retailer offers to purchase 15,000 of tennis shoes?

	a.	50,000 pairs
	b.	45,000 pairs
	c.	15,000 pairs
	d.	35,000 pairs

1F)

A domestic shoe company distributes running shoes and tennis shoes for $90 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $50 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Suppose the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes and 50,000 pairs of tennis shoes in total, of which 40,000 pairs of running shoes and 45,000 pairs of tennis shoes can be sold to domestic retailers. How many pairs of tennis shoes would you allocate to the Chinese market if the Chinese retailer offers to purchase 15,000 of tennis shoes?

	a.	0 pairs
	b.	10,000 pairs
	c.	15,000 pairs
	d.	5,000 pairs

Answer 1

1A) Option a. Marginal revenue from selling tennis shoes to the Chinese retailer is greater than its marginal cost.

Marginal Cost of producing a pair of tennis shoes = $45

A Chinese retailer offers to purchase tennis shoes = $55 per pair

Marginal Revenue = Change in Total Revenue / Change in Quantity Sold

= 55 / 1 = 55

Revenue from selling 1st pair = $55

Revenue from selling 2nd pair = 55 * 2 = $110

So, change in total revenue = 110 - 55 = $55

Here we see Marginal Revenue = $55 > Marginal Cost = $45

1B) Option b. No

If the domestic shoe company distributes tennis shoes for $90 per pair to it domestic shoe retailers and  a Chinese retailer offers to purchase tennis shoes for $55 per pair, for distribution in China, the shoe company will not sell tennis shoes to the Chinese retailer because the domestic market offers the shoe company a higher price at $90 per pair compared to the Chinese retailer who offers him only $55 per pair

1C) Option c. 40,000 pairs

If the Chinese retailer offers to purchase 15,000 pairs of running shoes and the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes in total, of which 40,000 pairs of running shoes can be sold to domestic retailers, then pairs of running shoes would you allocate to the domestic market = 40,000

Since the domestic market offers a higher price at $90 per pair of running shoes, the retailer would allocate the maximum amount it could to the domestic market. Since it can allocate a maximum of 40,000 pairs of running shoes in the domestic market, the shoe company will allocate the maximum amount.

1D) Option c. 15,000 pairs

If the Chinese retailer offers to purchase 15,000 pairs of running shoes and the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes in total, of which 40,000 pairs of running shoes can be sold to domestic retailers, then pairs of running shoes would you allocate to the Chinese market = 15,000

The shoe company can produce a total of 60,000 pairs of running shoes and after allocating 40,000 pairs in the domestic market, it still has 20,000 pairs left to sell in other markets. Since, the Chinese retailer offers to purchase 15,000 pairs, the shoe company will sell from the remaining pairs to the Chinese retailer.

1E) Option b. 45,000 pairs

If the Chinese retailer offers to purchase 15,000 pairs of running shoes and the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes in total, of which 40,000 pairs of running shoes can be sold to domestic retailers, then pairs of tennis shoes would you allocate to the domestic market = 45,000

Since the domestic market offers a higher price at $90 per pair of tennis shoes, the retailer would allocate the maximum amount it could to the domestic market. Since it can allocate a maximum of 45,000 pairs of tennis shoes in the domestic market, the shoe company will allocate the maximum amount.

1F) Option d. 5,000 pairs

If the Chinese retailer offers to purchase 15,000 pairs of running shoes and the domestic shoe company has a maximum capacity of 60,000 pairs of running shoes in total, of which 40,000 pairs of running shoes can be sold to domestic retailers, then pairs of tennis shoes would you allocate to the Chinese market = 5,000

The shoe company can produce a total of 50,000 pairs of tennis shoes and after allocating 45,000 pairs in the domestic market, it still has 5,000 pairs left to sell in other markets. Since, the Chinese retailer offers to purchase 15,000 pairs, the shoe company will sell from the remaining pairs i.e. only 5,000 pairs to the Chinese retailer.