INSTRUCTOR DISCUSSION NOTES:
Pods for…er…Into the Future?

1. Use a graph of long run average and marginal costs to illustrate why coffin makers have focused on the same shape for so long.

Attention should be focused on the downward sloping portion of the long-run average cost curve, showing an area wherein returns to scale are still positive.

2. What should happen to the elasticity of demand for traditional coffins as this product makes its way into the marketplace? Why?

Demand should become more elastic as substitute products enter the market.

3. Are there any external benefits associated with production of this new coffin? What might they be?

If the new coffins catch on, demand for hardwoods should fall; more trees help dissipate carbon emissions, maintains habitats, etc. Further, because the coffins biodegrade over 15 years, land use might become more efficient as burial sites could be re-used.

Multiple Choice/True False Questions

1. What principle best explains the reason that coffin makers have stuck to the same design for so long?

  1. Diminishing Marginal Utility
  2. Increasing Returns to Scale/li>
  3. Decreasing Returns to Scale
  4. Constant Marginal Cost
ANS .b

2. What is likely to happen to traditional coffin prices in the U.S. when Uono begins selling its product here?
  1. Price should rise.
  2. Price should fall.
  3. Price should drop to marginal cost.
  4. Price should become less elastic.
ANS . b

3. Assuming that the supply of jute is relatively inelastic in the short run, what should happen to the market price of jute if this coffin becomes popular?
  1. Price of jute should rise.
  2. Price of jute should fall.
  3. Price should remain the same.
  4. Not enough information to answer the question
ANS . a

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