South-Western College Publishing - Economics  
Pods for…er…Into the Future?
Topic Profit Maximization ; Monopolistic Competition
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Reference ID: A150213844

News Story If you've ever been involved in planning a funeral--or been to a few, for that matter - you know that, despite mortician's best sales efforts, all caskets pretty much look the same: they're boxy, and made of various types of wood or steel. So what happens if you need to buy a casket, but just don't like any of the models you see? You go into business and build them to suit your own aesthetic sensibilities!

So began the German company, Uono, after the owner discovered that one reason that coffins look so much alike is that many casket manufacturers have heavily invested in template-based wood and metal manufacturing, so the companies have strong incentives not to change coffin designs. What's more, these coffin manufacturers tend to have excess capacity in their production process, again contributing to the incentive to maintain the current production design.

Not Uono, the maker of oval-shaped coffins. Weighing only 44 pounds, these models are much lighter than regular coffins. What's more, they're designed to degrade, that is, "to become one with nature." The Cocoon, as it's called, is made of a natural resin that is designed to biodegrade after about 15 years. The lining is made from jute, so it will decompose as well. While you can request a silk lining for your coffin, Uono's owners want their product to be as eco-friendly as possible.

While these coffins are popular in Germany and other Western European countries, they have yet to find a distributor in the U.S. But someday soon, someone you know may be wrapped up in a cocoon, ready to transition into the next world.

Questions
Discussion Questions:
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.
2. What should happen to the elasticity of demand for traditional coffins as this product makes its way into the marketplace? Why?
3. Are there any external benefits associated with production of this new coffin? What might they be?
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
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.
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
Source Koerner, Brendan I. "That Final Resting Place, Reimagined." The New York Times.August 27, 2006.
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