Discussion Post
Part I
for this one, it is not calculation, please address the elasticity concepts and relations, write about your strategy and explain your reason.
You are the owner of a local car dealership. Unlike other dealerships in the area, you take pride in your "no-haggle" sales policy. Last year, your dealership earned record profits of $1 million. In your market, you compete against two other dealers, and the market-level price elasticity of demand for midsized Honda automobiles is -1.5. In each of the last five years, your dealership has sold more midsized automobiles than any other dealership in the nation. This entitled your dealership to an additional 20 percent off the manufacturer's suggested retail price (MSRP) in each year. Taking this into account, your marginal cost of a midsized automobile is $12,000.
i. What price should you charge for a midsized automobile if you expect to maintain your record profits?
Part II
After seven years of negotiations, 12 countries-including the United States, Japan, Vietnam, and nine other Pacific Rim countries-crafted the Trans-Pacific Partnership (TPP). A key feature of the TPP was the lifting of tariffs on many products traded between the member countries, ranging from agriculture to footwear. Before the United States ultimately pulled out of the deal, each member country went through the process of ratifying the agreement, with numerous domestic firms and collective interests voicing opposition. In the United States, New Balance was one of these opposing firms, specifically stating its disapproval of phasing out U.S. tariffs on shoes made in Vietnam.
i. What would a reduction of U.S. tariffs on Vietnamese shoes do to the supply of Vietnamese shoes in the United States?
ii. What impact would this have on the equilibrium quantity of shoes sold in the United States?
iii. Would the tariff reduction cause the equilibrium price for shoes in the United States to increase or decrease? Explain.
Part III
Bank 1 and Bank 2 are considering entering a compatibility agreement that would permit the users of each bank's automated teller machines (ATMs) access to the other bank's ATMs. Bank 1 has a network of branches and ATMs extending from the U.S. to Mexico. Bank 1's 12 million customers currently have access to only the 10,000 ATMs owned by the company in the U.S. While Bank 2's core account holders are located in Mexico and the southwestern portion of the United States, the company is expanding across the United States. Bank 2 has 15 million customers who can use any of its 14,000 ATMs.
i. Using the idea of network externalities, describe how such an agreement between Bank 1 and Bank 2 would benefit consumers.
ii. What is the business rationale for such a strategy between Bank 1 and Bank 2?
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.