Reference no: EM131673211

Q1. Levi decides to price a new line of jeans at $95, which covers all marginal opportunity costs as well as a healthy profit margin. If Levi has priced the jeans too high, what signals will the company receive? Based on those signals, what actions might Levi take next?

Q2. Most countryside parks charge a fixed price for a camping permit, and allow you to reserve specific campsites in advance. By the time the summer holiday weekends arrive, all the permits are usually taken. There is excess demand but no price adjustment. Suggest a pricing system for countryside parks that allows them to take advantage of the higher demand for campsites on holiday weekends. Your system should explain who is competing and who is cooperating.

Q3. In an attempt to promote the social good of energy conservation, NY hydro introduced the Peaksaver Program. Participating households received a $25 reward for allowing a "peaksaver" switch to be installed on their central air conditioners, which briefly turns off the air conditioner during peak demand times on hot summer days. Do you think the program would work without the $25 reward? Why? or Why not?

Q4. Explain the idea of Adam Smith's "invisible hand". The explanation should illustrate the balance between the forces of competition and cooperation at "prices that sit still".