Economics for Managers

1. In each of the following examples, describe how the information given about consumer demand helped managers develop the appropriate strategies to increase profitability and how this information was obtained:

a. Auto industry executives have begun to focus attention on their 20-, 30-, and 40-year-old customers, known as Generations X and Y, and away from the baby boomer generation. Recognizing that baby boomers are at least 60 years old, managers realize that their future depends on adapting to the tastes of younger generations. The auto industry is now offering more smart- phone-driven multimedia systems and is considering increased use of autonomous driving capability. Luxury car producers are developing less-expensive models, and companies such as Toyota are redesigning their cars to be more compact, efficient, and sporty.38
b. Companies such as Procter & Gamble Co., Unilever PLC, and Kimberly Clark Corp. are now using retina-tracking cameras to test consumer responses to new products. Kimberly Clark wanted to know which designs on its Viva paper towels were noticed in the first 10 seconds a customer looked at a shelf. This is the period when shoppers typically place items in their carts. Research has shown that what people want to do and what they say they want to do are often quite different. Companies are making increased use of this technology and three-dimensional computer simulations of product designs due to the lower costs of thistechnology.39

c. Anheuser-Busch InBev NV and other beer producers are trying to win back customers who have switched to smaller brewers or to liquor. Anheuser launched Bud Light Platinum with a 6 percent alcohol content compared with 4.2 percent in Bud Light. Platinum is sweeter and sold in a cobalt blue bottle designed to be more popular in bars where much of this beer is sold. The company experiments with three new beers each day in its research brewery. Anheuser is also developing new products such as Bud Light Lime-a-Rita, which tastes like a margarita, and a tea-and-lemonade drink and a cider, each containing 4 percent alcohol. The company is using its Clydesdale horses to bring more free beer samples to festivals and fairs.40

Chapter 5, Application Questions # 3 on page 141
The following discussion describes a new inventory system used by J. C. Penney39: In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style. The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney’s shirts directly from its stores in North America for analysis through a computer model it designed.
The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailer’s warehouses and corporate decision makers.
a. Discuss how this case illustrates the concept of the opportunity cost of capital.
b. How does this innovation also help in demand management?

Chapter 5, Exercise Question# 3 on page138
Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages for two workers, electricity, and insurance.
a. Identify which costs are explicit and which are opportunity (implicit) costs.
b. Identify which costs are fixed and which are variable.