Question

Jones is the manager of an upscale clothing store in a shopping mall that contains only two such stores. While these two competitors do not carry the same brands of clothes, they serve a similar clientele. Jones was recently notified that the mall is going to implement a 10 percent across-the-board increase in rents to all stores in the mall, effective next month. How should Jones change her prices in response to this 10 percent increase in monthly rent?

Answer 1

Answer:

Jones is the manager of an upscale clothing store in a shopping mall that contains only two such stores. While these two competitors do not carry the same brands of clothes, they serve a similar clientele. Jones was recently notified that the mall is going to implement a 10 percent across-the-board increase in rents to all stores in the mall, effective next month. How should Jones change her prices in response to this 10 percent increase in monthly rent?

In response to this 10 percent increase in monthly rent, Jones should not increase the prices for both stores.

Explanation:

A 10 percent increase in the rent signifies an increase in the fixed cost. Therefore, both stores observe a rise of 10 percent in their fixed cost, when a 10 percent across-the-board increase in rent is applied in the mall. However, this does not raise the variable cost and the marginal cost.

Therefore, in response to this 10 percent increase in monthly rent, Jones should not increase the prices for both stores.