Reference no: EM133065997
Frank owns a men's clothing store. Some items, such as underwear and socks, sell at about the same rate all year. Customers demand other things, such as down parkas, only at certain times of the year. Frank is proud of the selection of down parkas he offers his customers, and he tries to have many in stock each fall. Down parkas are expensive. Frank must pay $80 for each one he buys, and he wants to sell them at a large markup.
Over a three-year period, Frank kept track of his price, the number of parkas he ordered, and his sales. His information appears in the table below. Study this information and answer the questions that follow.
|
|
Price Charged
|
Quantity Ordered
|
Quantity Sold
|
|
Year 1
|
$180
|
120
|
80
|
|
Year 2
|
$165
|
110
|
90
|
|
Year 3
|
$150
|
100
|
100
|
Answer Choices:
a. a shortage my occur
b. have a sale, the reduced price
c. surplus parkas
d. to avoid a surplus and find his equilibrium
e. $150
Questions:
1. If Frank's information is correct, what is the equilibrium price for parkas?
2. What problem did Frank have at the end of the season in the first and second years?
3. What was Frank probably forced to do to solve this problem?
4. Why did Frank order fewer parkas in the second and third years?
5. What do you think might happen to Frank's sales in year 3 if we experienced an extremely cold winter?
Extra Questions:
- Entrepreneurs generally charge the equilibrium price if they know what it is.
True or False
- An entrepreneur who charges the equilibrium price may not earn a profit.
True or False