Lube Job. Many gas stations and three specialty shops (Pennzoil, Jiffy Lube and
ID: 1228620 • Letter: L
Question
Lube Job. Many gas stations and three specialty shops (Pennzoil, Jiffy Lube and Valvoline) do oil changes in Charleston, WV. You’ve probably been to one of these and know the productionmethod. A Jiffy Lube manager recently got a great idea: instead of using the conventional 3 bay station, he was going to enlarge his operation to 10 bays. He reasoned he’d be able to take advantage of economies of scale and drive out the competition. Do you think his idea will be successful? Why or why not?Pick an economist: Jeremy Bentham, J.S. Mill or Alfred Marshall. What did he add to
economic science?
Home, Sweet Home. Suppose Ms. Profligate and Mr. Discipline both purchase identical $185,000 homes in Marietta, GA on January 1, 2012. They both have good credit and qualify for a loan with no down payment and 4.8% financing. Profligate take a 15 year loan whereas Discipline take a 30 year loan and reinvests the monthly difference in payments in a the S&P Index fund paying 8.2% per year. Compare their position after 10 years (payment 120). Who has the least-cost home ownership and by how much? (Hint: use the monthly compounding formula FV = PV [(1+i)n -1 / i)] and use an online amortization tool.)
*Take me out to the ballpark. It’s nearly baseball time and baseball franchises are thinking about pricing their products. Assume a team sells three concessions: hotdogs, soda and nachos. For hotdogs, the average fan’s MU for units 1, 2, and 3 is 150, 125, and 80 utils. For soda, MU for units 1, 2, and 3 is 130, 100 and 60. For nachos, it’s 140, 120 and 100. The average fan spends $25 per night on concessions. Hotdogs cost $5, nachos $4 and sodas $3. A) what is the composition of the average fan’s spending? B) how would this spending pattern change if hotdog prices rose to $5.25 and sodas fell to $2.50? Show all work.
Explanation / Answer
Lube Job. Many gas stations and three specialty shops (Pennzoil, Jiffy Lube and Valvoline) do oil changes in Charleston, WV. You’ve probably been to one of these and know the productionmethod. A Jiffy Lube manager recently got a great idea: instead of using the conventional 3 bay station, he was going to enlarge his operation to 10 bays. He reasoned he’d be able to take advantage of economies of scale and drive out the competition. Do you think his idea will be successful? Why or why not?
I do not think his idea will be successful for several reasons:
1. Jiffy Lube operates as a monopolistic competitor. When Jiffy Lube creates 10 bays instead of 3, this will only decrease the ammount that he is able to charge (i.e. the price will go down). Since Jiffy Lube is a monopolistic competitor, a cut into Jiffy Lube's prices will force his competitors to cut their prices, as well, leading to a situation where all the firms are competing to have the lowest prices - but ultimately, all three will suffers decreased profits (perhaps even losses) from their decision to do this.
2. There is no need. As a monopolistic competitor, Jiffy Lube has a vested interest in keeping quantity low (3 instead of 10) and prices high - this is where Jiffy Lube and others will maximize their profits.
Ultimately, this is an unsound decision that will eat at profits and harm the business.
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