Jessica Alba, a famous actress, starts the baby and family
products business, The Honest Company, with Christopher Gavigan.
Alba and Gavigan set up their site so families can choose what
kinds of non-toxic, all-natural products they'd like to use and get
them in a bundle. Families can choose all kinds of products from
food to hygiene necessities and cleaning supplies. Suppose they are
thinking of expanding their business into five domestic markets:
Phoenix, Dallas, Chicago, New York, and Atlanta. Assume their
primary goal of business is to maximize economic profits, although
they want to do business honestly.
Show all your calculations and process. Describe your answer for
each question in three- to five-complete sentences.
a.You are a business adviser for Alba and Gavigan. Describe a
skimming price and a penetration price, and advise them whether
they should charge a skimming price or a penetration price, with
supportive reasoning for and against each pricing alternative.
b.Are they likely to make economic profits initially? Can they
continue to make economic profits in the long term? Why or why not?
Discuss. c.What advice would you give to Alba and Gavigan to help
them make more profit in the long term?
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