Question

Handwrite in text plz not in pic since its hard to read from and plz dont copy answers that were answered before least 2-3 paragraphs

1.New York Giants star quarterback Eli Manning can sell 5 times more Giants memorabilia than any other employee of the team or stadium. Realizing this, Eli decides to stand behind a concession stand at MetLife Stadium and sell Giants merchandise during the team’s next home game. Why shouldn’t Eli do this, even though he’s better than anyone else at doing it?

2. A gas station owner sees a report on TV which states that the number of gallons of gasoline sold in the U.S. has barely dropped, even as the price per gallon has soared in recent weeks. The price elasticity of demand for gasoline is described in the report as “highly inelastic”. The gas station owner responds to this report by jacking up the prices at his station by 50 cents per gallon. Sales and revenues at his station plummet in the first month after the price increase, and drop even further in the second month. What factors did this gas station owner fail to consider when he responded to the TV report by aggressively raising his prices?

least 2-3 paragraphs

Answer 1

Asked for typed answer.

Answer:

1. Why shouldn’t Eli do this, even though he’s better than anyone else at doing it:

Eli Manning has absolute advantage in both i.e. as a American football quarterback and Giants memorabilia, but he has comparative advantage as a American football quarterback.

He has lesser absolute advantage in as a seller of Giants memorabilia.

i.e

Eli should not sell giants merchandise even after being best at it because of his extremely high opportunity cost by not playing as the New York Giants star quarterback.

Even after having the absolute advantage in selling Giants memorabilia, he has comparative advantage over playing as a quarterback.

Eli should not do it, because it will depreciate the value of Eli as a quarterback of his club.

Fans meeting them so freely, will erode the brand value of Eli. So, it will create more harm than the good.

Besides, it will bring more recognition to the Met Life the insurance company that is hosting Eli with the concession stand.

So, in the long term, it will create loss to Eli and his club.

He should not do this because he is primarily a footbal player. Playing football is what he is best at. Comparitive advantage is the advantage that a person, nation or firm gets by means of specialization.

For example,

country A's labor is best at producing computers, while Country B's labor is best at producing wheat.

Then country A must stick to producing computers and country B must produce wheat otherwise they will not be able to optimally utilize their resources to achieve profit maximization.

This specialization provides competitive advantage (i.e) Country A has a competitive advantage over country B in the production of computers while country B has a competitive advantage over country A in wheat production.

So, coming back to the question and applying this principle to Eli's career, it is clear that he will be best at playing football even though he is good at selling team merchandise.

He has an advantage playing football over merchandise sales. Someone who specializes in sales would be better than him at selling the merchandise.

2.factors did this gas station owner fail to consider when he responded to the TV report by aggressively raising his prices:

There were many factors, not to be considered by the owner of gas station.

The first factor is the presence of rival gas stations in nearby areas, providing gasoline at the same old rates.

At these gas stations, consumers shifted and revenue collection decreased at the gas station where the price increased.

The second factor is the presence of substitutes and other methods of conveyance to be used by the people.

People saw that price is rising, then they adjusted themselves in one month time and started opting different modes of transportation to reduce dependency upon the gasoline.

The third factor is the nature of people to adapt and decrease the demand with rise in price in the long term. People did the same and balanced their spending on gasoline.

Elasticity of demand is the degree of responsiveness of demand to change in level of prices .

Initially the producer faced inelastic demand meaning a high price change did not changed the demand but if there are other competitors in the market who provide gas at lower price then demand would shift towards that producer causing a fall in demand .

This means in long run abnormal profits would not be possible , also if there is rising tax of other economic fluctuation causing drop in income people will have to reduce their demand drastically.

There are many factors which can determine the sales and revenue for the firm.

Some of the factors are availability of close substitutes , preference of consumers ,etc .

The other most important factor is time period and price elasticity of supply .

Now, we can divide the time period into three parts.

1) Market period - In market period supply and demand didn't change at all.

2) Short Run - In short run demand and supply can be changed to a little extent. So in short run there will little change in both supply and demand and hence revenue and sales will change to adjust to market situation.

3) Long run - In long run both supply supply and demand change to a large extent and hence supply and demand changes to large extent and hence revenue and sales will change substantially.