Answer my economic questions?

[elton]

Cosmopolitan Multifabrics, Inc., offered to buy Thistle River Industries because the officers of Cosmopolitan Multifabrics saw that Totter is doing a good business. His firm's only visible assets are a rather old sering factory in Indiana, a New York showroom, a few small shops on rented premises, and a stock of bedspreads and cloth, but they offer $3,000,000 for Thistle River's assets and name. However, if Mr. Totter consents to join Cosmopolitan Multifabrics as an executive vice president and manager of the Thistle River subsidiary, they will pay him $6,000,000 for his business plus an annual salary of $190,000. How does the second offer to Mr. Totter suggest that there is competition in the sale of services as well as in the sale of material goods?

Thistle River has been selling one of its better bedspreads for a retail price of $400. If Spread Shed, a major competitor of Thistle River's, were to offer a bedspread almost identical in appearance and quality at the retail price of $125, what do you think would happen? What would Thistle River probably need to do to market its unsold goods? How would this action prove that competition is bbeneficialto the public?

Suppose that Spread Shed were to gain so much of the business formerly done by Thistle River that Mr. Totter's firm were in danger of bankruptcy. If Mr. Totter were to then complain to his New York state senator about "unfair competition," asking for passage of a state law setting minimum prices for bedspreads, would such a statute be good for the people of New York state? Why or why not?

The Grocery busniess in America is still highly competitive. Prices are lower and there is a wider variety of foods in the United States than in other large countries. Yet there are fewer food stores, per capita, than there were in the United States 60 years ago because much of the food retailing business has been taken over by large chains. Would yous say that we now have imperfect competition in food distribution? Why or why not?

[eliot]

1. The price offered to Mr. Trotter more than doubled (from $3 million to $6 million plus a salary. This suggests that Mr. Trotter did not accept the first offer, so he must have had another option that he preferred (the first offer had a higher opportunity cost than some other option, to put it in economics terms). Assuming that his better option was based on monetary concerns, it implies that he could get more than $3,000,000 elsewhere, which means competition for his company and / or his services.

2. As long as consumers perceive that the quality is identical, or nearly identical, many would prefer to pay $125 instead of $400 for the same thing. Spread Shed would take business away from Thistle River, which would suddenly have unsold goods. But there is more than one way for Thistle River to react: they could lower their prices to match (assuming that they could still make a profit doing so), they could find a cheaper way to manufacture bedspreads so that they could lower the price without losing profits, or they could appeal directly to the consumers with an advertising campaign to educate consumers as to why their product is better, and worth that much more than the competition's prices. Assuming that the company still perceives the products to be identical, the first two options will increase efficiency in the market: higher quantity at a lower price. That would mean that the competition is beneficial to the public.

3. The answer to this question depends on whether any actual "unfair competition" took place. The question doesn't say one way or the other. If the charge is true, then Spread Shed should be penalized according to the law. If it is not true, then Mr. Trotter should either get his company to be more efficient, or let the market prove that his resources are no longer needed. Either way, setting an artificial price, whether too high or too low, is inefficient. It won't let market forces equate supply and demand, and it won't promote efficiency.

4. There is no perfect competition in food distribution. The question is vague as to whether it is referring to the market for each local store, or for the bigger market that each chain serves. Either way, it is not perfect competition. In each community, no more than a handful of stores compete with each other; this makes the market structure oligopoly, not perfect competition. For the grocery store chains, that is also oligopoly, because there are few sellers. Besides, grocery stores have never met the definition of perfect competition: not only are there never a large number of stores in a community to compete with each other, but also they can use nonprice competition because they offer products and services that are not identical: they can have friendlier cashiers, home delivery, check cashing services, or any of a large number of extra services, plus they use their limited shelve space to offer slightly different brand names and product sizes.