Author Question: Gift shops in a small town sell identical mugs to tourists. However, tourists don't have enough time ... (Read 203 times)

crazycityslicker · **on:** Jul 1, 2018

Gift shops in a small town sell identical mugs to tourists. However, tourists don't have enough time to check out the prices one by one and don't have brochures listing prices of mugs. We can conclude

A) the market for mugs is perfectly competitive.
B) buyers have full information.
C) sellers are price takers.
D) the market is not perfectly competitive.

Question 2

Superstar actors typically get contracts that specify that they get a percentage of the gross, the total revenues that the movie brings in.

Why might actors want contracts structured that way? Why might producers be willing to agree to that, and how does this make the goals of actors and producers different?

xoxo123 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

D

Answer to Question 2

Actors want to maximize revenue with this sort of contract, while producers wish to maximize profit. It is clearly advantageous to the actor, since cost overruns won't impact what they receive. But it might also suit producers, because if actors are interested in maximizing revenue, they have an incentive to promote the movie and try to increase sales (and to do a product job). This might be more of an incentive than a cut of the profits, over which they have less control.