New York Giants star quarterback Eli Manning can sell 5 times more Giants memora
ID: 1222348 • Letter: N
Question
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? 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?Explanation / Answer
In the first part of the problem, it has been stated that, Eli of New York Jiant star can sell 5 times more than other employees of the team/stadium. In spite of knowing this fact, he decided to stand behind the concession stand, instead of selling it from front. Reason is as follows.
Selling merchadise is a team effort. A person may be more efficient. But only one cannot boost up the sale. He wants to give others the first opportunity to convince and sell. If they fail, then Eli standing at the back will apply his skill to convert negative cases into positive. It will increase average performance of others who are standing before him. Also by closely watching their efforts, Eli will be able to identify the specific areas where emphasis is needed to convince a customer. Thus in totality, sales revenue will increase and average performance will be better.
Also he will be able to identify lacuna of others, and can suggest them the for removing their defects. In this manner, other members of the team will be able to sharpen their skill. Ultimately organization will be able to avail its beefits in the coming days.
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In second part newspaper report has indicated that, price of gasoline in recent week has increased. In spite of this change, demand of gasoline is almost same. It indicates a very less responsive gasoline demand. Highly inelastic demand is observed when product is essential in nature.
On the basis of this newspaper report, gas station has decided to raise the price further to 50 cents per gallon. Result is a continuous drop in revenue in two successive years.
In this action, following points are ignored by the gas station while taking price hike decision.
1. It has not considered the range of price rise which people can withstand at their current income pattern. After this hike, it has supassed the limit. So people has no other option but to curtail its consumption. In fact after this hike, marginal cost of gasolie has become more than marginal benefit/utility. so demand has dropped to restore equilibrium situation of price=marginal utility
2. Gasoline may be an essential item, but there are many substitutes of it. After this 50 cents increase, other alternatives are more cheaper. So they have substituted gasoline. Hence its sale has dropped.
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