28.03.2023 - 02:11

While at a discount shoe store, a customer asked the clerk, “I see that your shoes are ‘buy one, get one free’ – limit one free pair per customer. Will you sell me one pair for half price?” The clerk answered, “I can’t do that.” When the customer started

While at a discount shoe store, a customer asked the clerk, ‘I see that your shoes are ‘buy one, get one free’ — limit one free pair per customer. Will you sell me one pair for half price?’ The clerk answered, ‘I can’t do that.’ When the customer started to leave the store, the clerk hastily offered, ‘However, I am authorized to give you a 40% discount on any pair of shoes in the store.’

Assuming the consumer has $200 to spend on shoes (X) or all other goods (Y), and that all shoes cost $100 per pair, answer the following questions:

a. Illustrate the consumer’s opportunity set with the ‘buy one, get one free’ deal and with a 40% discount.

b. Why was the 40% discount offered only after the consumer rejected the ‘buy one, get one free’ deal and started to leave the store?

c. Why was the clerk willing to offer a ‘buy one, get one free’ deal, but unwilling to sell a pair of shoes for half-price?

Answers (1)
  • 1gjkmpjdfntkm9
    April 7, 2023 в 12:23

    a. With the 'buy one, get one free' deal, the consumer can buy two pairs of shoes for $100 each and get one of them for free. Therefore, the consumer can buy two pairs of shoes for $200. This can be illustrated by a straight line connecting the points (0,2) and (2,0) on a graph, where the vertical axis represents the number of pairs of shoes and the horizontal axis represents the number of other goods.

    With the 40% discount, the consumer can buy one pair of shoes for $60 (40% discount off the regular price of $100). Therefore, the consumer can buy three pairs of shoes for $180, leaving $20 for other goods. This can be illustrated by a straight line connecting the points (0,3) and (20,0) on a graph.

    b. The 40% discount was offered only after the consumer rejected the 'buy one, get one free' deal and started to leave the store because the clerk wanted to sell more shoes and make a profit. The 'buy one, get one free' deal was a promotional offer to attract customers to the store, but the clerk wanted to sell more shoes at a higher price to increase the store's revenue. By offering the 40% discount, the clerk hoped to persuade the customer to buy more shoes and spend more money in the store.

    c. The clerk was willing to offer a 'buy one, get one free' deal, but unwilling to sell a pair of shoes for half-price because the 'buy one, get one free' deal would still allow the store to sell two pairs of shoes at a higher price, whereas selling a pair of shoes for half-price would result in a loss for the store. The 'buy one, get one free' deal was a marketing strategy to attract more customers and increase sales volume, while a half-price offer would reduce the store's profit margin. Therefore, the clerk offered a 40% discount instead, which would still allow the store to make a profit while offering a discount to the customer.

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