Exercises Chapter 3.pdf - Exercises Chapter 3 1 Most of the dresses sold in Kmart(a chain of discount department stores in the US are produced in large

# Exercises Chapter 3.pdf - Exercises Chapter 3 1 Most of the...

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Exercises Chapter 3 1. Most of the dresses sold in Kmart (a chain of discount department stores) in the US are produced in large factories that are dispersed, not concentrated. Reconcile this fact with the text discussion of localization economies that cause dressmakers to cluster. 5. Consider the same firm entry decision when the workers’ ability is distributed evenly on a circle of length 1. Suppose the gross wage is 36 and the unit training cost is 48. Calculate the skill gap, training cost and net wage for the case the number of workers is 4, 8 and 24. 7. Consider corporation that use advertising firms to development market campaigns. Each corporation buys one campaign per year, and the cost per campaign is , where is the number of corporations in the cluster. The cost of labor per unit is . A corporation’s profit equals its total revenue of 200 minus the sum of marketing and labor costs. There are two location options: an isolated site or a cluster up to 5 corporations.

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Unformatted text preview: a. Sketch the shape of cost function of a corporation in the cluster. b. If initially all corporations are isolated and then two forms a two-cooperation cluster. In this case, other firms [will, won’t] have an incentive to join the cluster because…… c. In the long run equilibrium, there will be a cluster of ___ corporations, each of which will earn a profit of ___. 9. Suppose that personal grooming and pet grooming are complementary products. Betty could move her beauty shop from an isolated location to a minimall that also contains Peter’s pet grooming shop. If she moves , she will attract some Peter’s customers and her pre-rent profit will increase by \$180. Her current rent is \$100, compared to \$300 in the minimall. a. Betty [will, will not] move to the minimall because…… b. Better’s presence in the minimall will increase Peter’s profit by \$100. If you were the manager of the minimall, with the power to set the rent of each tenant, what would you do?...
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