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A domestic shoe company distributes running shoes and tennis shoes for $95 per pair to it...

A domestic shoe company distributes running shoes and tennis shoes for $95 per pair to it domestic shoe retailers. The marginal cost of producing a pair of running shoes is $60 and the marginal cost of producing a pair of tennis shoes is $45. Ignore any potential issues of bundling the two types of shoes together as part of the sale and any competitive effects that international sales might have on current domestic sales. A Chinese retailer offers to purchase running shoes for $55 per pair and tennis shoes for $55 per pair, for distribution in China. Is the marginal revenue from selling running shoes to the Chinese retailer greater or less than its marginal cost?

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Answer #1

The marginal cost of a pair of running shoes is $60 and the marginal revenue from selling running shoes to the Chinese retailer is $55. So, the marginal revenue is less than the marginal cost.

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