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Use the Following Information to Answer Question That Refer to the Jewel

question 61

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Use the following information to answer question that refer to the Jewel Craft case. Jewel Craft, Inc. is a leading producer in the United States' women's costume jewelry and accessories market. Its brands are well known and are sold by department stores and better women's stores. Several stores in a city may carry Jewel Craft's brands because most of Jewel Craft's customers will not consider any other brand.
Jewel Craft's sales force calls on one wholesaler in each state. Gemco, Inc., of Boston, Massachusetts, is the Jewel Craft distributor in that state. Gemco stocks and sells women's accessories (noncompeting lines) for several manufacturers like Jewel Craft. Wholesalers are allowed a 20 percent markup by Jewel Craft-but pay the freight charges to their warehouses. Jewel Craft's policy of using one wholesaler per state comes from its desire to control its distribution. Jewel Craft uses national magazine advertising and also supports a cooperative ad program with retailers.
Jewel Craft's prices allow for a 40 percent retail markup-an attractive percent when one considers that Jewel Craft's products require little in-store selling because of their well-established reputation.
Recently, Jewel Craft was approached by a watch producer with the idea of expanding to watches under the Jewel Craft name. It was argued that although national watch sales have leveled off, Jewel Craft could enjoy growing sales for several years because of the fine reputation the company has achieved. If watches are added, Jewel Craft will use its present policies regarding distribution, pricing, and advertising. Further, it will offer the wholesalers and retailers an attractive "package" deal as an incentive to carry Jewel Craft watches. Intermediaries will be required to carry the watches if they wish to handle the jewelry and accessories.
Jewel Craft's selling price for an item that retails for $10 would be:

Definitions:

Pure Monopoly

An economic condition where one firm controls the market for a product, effectively eliminating competition.

Close Substitutes

Goods or services that can easily replace each other in consumption, offering consumers nearly identical satisfaction.

Natural Monopoly

A market situation where a single firm can supply a good or service to an entire market at a lower cost than could multiple firms.

Minimum Efficient Scale

The smallest scale of production at which long-term average costs are minimized, reflecting the point at which economies of scale are fully exploited.