Question

You open a gas station and put smiley faces on your pumps.

1.Are short-run profits possible?

2.Are long-run profits possible?

You give customers a free car wash with a purchase over $30.

3.Are short-run profits possible?
4.Are long-run profits possible?
You add Super Value Cleaner to your gas (and it makes a difference).
5.Are short-run profits possible?
6.Are long-run profits possible?
7.Name a product OF YOUR OWN where brand names are a gimmick.
8.Name a product OF YOUR OWN where brand names make a real difference.

Answer 1

1.

No, because gas station is a price taker, ans its products are unable to differentiate from the other gas stations. Besides, high fixed cost is placed.

2. No, but zero economic profit will be achieved.

3.

No, because one customer making purchase of over $30, will be very few then this scheme will not work. But, yes, it will reduce the loss.

4.

No, but zero economic profit will be achieved, because some players will exit the market and price will increase.

5.

Yes, because more customers start visiting the gas stations and more revenue will be earned, leading to profit. It becomes a differentiated product. So, slightly higher prices can also be charged.

6.

No, because other gas stations will copy this trick or service delivery, making economic profit to be zero.

7.

Gasoline where brand name is not so significant.

8.

Starbucks coffee, here the brand name is very important.