Question

Shoe company
A domestic shoe company distributes running shoes and tennis shoes for
$95 per pair. 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. A Chinese retailer offers to purchase running shoes for $55 per
pair and tennis shoes for $55 per pair for distribution in China.
Should the shoe company sell any shoes to the Chinese retailer?
(Ignore any potential issues of bundling the two type of shoes
together as part of the sale and any competitive effects that
international sales might have on current domestic sales.)

Answer 1

A producer sells a product at the point where its Marginal Cost (MC) is equal to or less than the Marginal Revenue (MR) or the price. Since the MC of producing a pair of running shoes is $60, a producer will not be ready to sell it at $55 since he will not be able to cover its cost by doing so. If the MC of producing a pair of tennis shoes is $45 and the Chinese retailer is ready to purchase it at $55, then the shoes should be sold at this price as the price is less than its MC and the producer will earn profits Therefore, the company should sell only the tennis shoes to the Chinese retailer.

Answer 2

(60-55)+(45-55)=-10+5=- $5

Answer 3

http://www.transtutors.com/questions/tts-shoe-company-a-domestic-shoe-company-distributes-running-shoes-and-tennis-shoes--130326.htm

Answer 4

Answer

Domestic sell	Production cost	Profit	Remarks
Both shoes (95+95)=190	60+45=105	190-105=$85	He would sell to domestic retailer
Sell to Chinese buyer
55+55=110	60+45=105	110-105=$5	He would not sell to Chinese buyer

a.     Should the shoe company sell running shoes to the Chinese retailer?

Answer No shoe company will not sell to Chinese retailer

b.    Why or why not?

Answer : profit is less comparison to domestic selling. Or Chinese retailer is purchasing company good lower price than in the domestic market and it is less than the marginal cost of production so shoe company will not sell below the marginal cost condition. Loss will incur to company if he only sell running shoe (95-55)=$45

c.     Should the chose company sell tennis shoes to the Chinese retailer?

Answer No shoe company will not sell to Chinese retailer

d.    Why or why not?

Answer : profit is less comparison to domestic selling. Or Chinese retailer is purchasing company good lower price than in the domestic market and no doubt it is paying more than the marginal cost of production even though shoe company will not sell because loss will incur to company if he only sell tennis shoes (95-55)=$45

        e.             Answer

Selling price	Total cost	Profit	Remarks
95*45000=4275000 95*45000=4275000                    8550000	45000*60=2700000 45000*45=2025000                     4725000	8550000-4725000=3825000
(15000+15000)*55= 1650000	15000*60=900000 15000*45=675000                     1575000	1650000-1575000=75000

               

        

        Shoe company will not sell to Chinese retailer.