5.5 Long Run Costs and Economies of Scale

Kim's Vanity

Custom Jewellery Since 2011

Kim's Vanity is a petite jewellery shop located in Calgary, Alberta which specializes in made to order necklaces, bracelets and earrings.

The shop is small, with room for only the finest beads, crystals, pearls, sterling silver, and gold available today.

Kim's Vanity targets the smaller scale (if growing) market of descerning women wishing to wear only the highest quality jewels.

Costs of Production:

Long-Run:

Gold and Silver

Diamonds

Precious Stones

Short-Run:

Chain links

Clasps

Beads

Crystals

Wire

Tools

Fixed:

Shop Rent

Utilities

Postage

Website.

Kim's Vanity in comparison to Tiffany & Co:

What size is Tiffany & Co Plant?

Extremely large, built to cater to a global market.

More than half of Tiffany's 2010 sales were made outside the USA, clearly demonstrating the power of a global expansion program that has provided a platform for robust and sustainable growth.

Tiffany has expanded since 2010, with several macro economic challenges facing not only them but the world as a whole.

http://www.shareholder.com/visitors/DynamicDoc/document.cfm?DocumentID=2945&CompanyID=TIF&zid=4aa3a869

5-A Law of Diminishing Returns

A few thoughts on:

The Diminishing Returns to Tobacco Legislation

by Pierre Lemieux

From 1985-1995, the government increased taxes by 52 percent, and not surprisingly, a decrease in tobacco consumption by 18 percent soon followed. So it would appear that increasing taxes would help combat the issue of smoking, right?
Yes and No.
Higher taxes will definitely deter some who are not as deep into the throes of addiction, but for those who will puff on the cancer sticks at any cost, their disposable income gets smaller by with each year they stay hooked.
Pierre Lemieux writes:
“In order to maintain the antismoking movement's momentum, more and more regulations and taxes are required, which is also consistent with the interest of our large public health bureaucracies. Certainly, health bureaucrats have become addicted to power. One wonders what will be the next regulatory steps.”
Indeed, health bureaucrats to appear to be making a fortune off of addicts’ accommodation of the sky high taxes. But where does all this tax money go? Perhaps to truly make a mark in the combat against nicotine addiction, the surplus of sin tax money could be used to provide government funded treatment for smokers (prescriptions, over the counter aids, and addictions counseling), or for research funds to help develop a more effective quitting method. Scrap the expensive pack illustrations and get to the root of the problem.
It appears the government cares just enough about the health of smokers to slap a label on a pack of cigarettes, and safely avoid scrutiny in the process. But are they ready to transfer the millions of tax dollars they make on addiction to really helping smokers? Perhaps reforming their thought pattern would reduce the government diminishing returns.
Pierre touches on comparing the anti smoking campaign to the war on drugs. This is interesting, but incorrect. Nicotine is legalized, saving the millions of tax dollars spent on the incarceration the drug trade garners.
With a product as inelastic in tobacco, the cigarette industry clearly goes against the standard law of supply and demand. Prices go up, but demand stays the same. We have sin taxes and government agenda to thank for this phenomenon. The tobacco companies have it made. How they sleep at night is another story.

4.3 Tourism in Canada

Due to an increasingly high Canadian dollar, there has been a steady travel defecit in Canada. Travelers are seeking out destinations where their own dollar goes further. Conversely, Canada’s domestic travel remains strong, due to solid growth in disposable income.
The Canadian airline industry is benefitting from the high dollar, as it brings increased travel to international destinations. Strong growth in incomes and corporate profits is boosting spending on pleasure and business travel as well.
As previously mentioned, Canada is an expensive destination for many, and this has been reflected in earnings for the accommodation sector. Conversely, strong hotel room rates have attracted hotel investors.

Currently Canadian Tourism is quite elastic. With it’s high dollar there are many other more affordable substitutes for vacations and holidays.


From ‘Canada’s Tourism Industry.:

http://www.corporate.canada.travel/docs/research_and_statistics/trends_and_outlook/industrial_outlook/Industrial_Outlook_Spring_2008_eng.pdf

Excercise 4.2 - Buttery Popcorn

Have you ever tried to sneak warm, buttery popcorn into the movie theatre with you? Chances are you would need a large bag to attempt such a feat, or risk leaving a greasy stain on the outside of your pants pocket. It would be easier to buy a bag at the theatre. You could leave the backpack at home and avoid the throng of animals trailing you to the theatre as well.



So why would anyone want to sneak popcorn in?
One, popcorn in the movie is expensive.
Two, there are no subsittues for the popcorn.
Three, the popcorn is so delicious, that you know you can't make it as well at home.
When there are little to no substitues for a product, the product is said to be inelastic, and generally, the more inelastic a product is, the more revenue it will create.

At $6 a bag, 200 people per night are willing to buy popcorn.
At $8 a bag, the same 200 people per night are also willing to buy popcorn.
If the rising of the price of popcorn deterred the popcorn lovers from buying it, would be an elastic product.

From website: http://m.theglobeandmail.com/report-on-business/article972617.ece?service=mobile

3.2 Market Equilibrium

A simple example of the market for eggs at equilibrium