The lure of spices during the medieval period wasn\'t driven merely by the desir
ID: 1141116 • Letter: T
Question
The lure of spices during the medieval period wasn't driven merely by the desire to improve the taste of food (Europe produced saffron, thyme, bay leaves, oregano, and other spices for that).The lure of nutmeg, mace, and cloves came from their mystique. Spices became a symbol of prestige (just as Gucci and Ferrari are today). Most Europeans didnt even know that they grew in the tiny chain of islands called the Spice Islands today. a. Suppose you grow much of the spices in the Spice Islands. Knowing that few people could compete with you, how would you adjust your production to maximize your profits? b. Suppose you heard rumors that the Europeans to whom you often sell are also becoming fascinated by the mechanical clock, a new invention that was spreading across Europe as a new novelty and as yet another symbol of prestige How would this change your optimal production? Why? c. Once Europeans made contact with the Americas, a new, high-status novelty arose: chocolate. Was this good news or bad news for you, the monopolist in the Spice Islands?Explanation / Answer
a. The market for spices is near to monopoly as mentioned in the question. To maximize profits, the production should be adjusted to the point where marginal revenue from sale is equal to marginal cost. The optimal condition in case of monopoly is equalization of marginal revenue and marginal cost.
b.The invention of new product as novelty might lead to fall in production of spices because initially spices were the only product of novelty, thus profits were more, however, with new products entering the market the profits might fall abd this leads to fall in production.
c. This is the bad news because initially spices were the only product of novelty. With chocolates entering the market, the production of spices will fall as market will be divided among many products of novelty.
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