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Homework answers / question archive / In this chapter we have noted how businesses are dynamic and constantly looking to exploit new opportunities which involve changing the way they operate production

In this chapter we have noted how businesses are dynamic and constantly looking to exploit new opportunities which involve changing the way they operate production

Economics

In this chapter we have noted how businesses are dynamic and constantly looking to exploit new opportunities which involve changing the way they operate production. What might not have been a success for some firms does not mean to say that there are not other firms that will be able to benefit. This article shows how problems faced by one firm in making sufficient profits are not necessarily shared by other firms as the use of factor inputs is changed. Best Buy Fails to Break large-scale production - economies of UK Market scale. In the end the cost of such an investment in relation to the expected US electrical retailer, Best Buy, made benefits in a market which was chal- an attempt to enter the UK electrical lenging (given the economic situation in retail market in 2010. The retailer is the UK, the income elasticity of demand known across the United States for its for electrical goods in general and the high quality sales staff and discount increasing use of online as the medium prices and attempted to bring its busi- of choice for shoppers), meant that ness model to the crowded UK market option was discounted. which features the likes of Currys, The decision to close down opera- Argos, Dixons and Comet tions will have been taken in the light of The plans to enter the UK market the expected costs of trying to maintain arose when Best Buy Inc bought half its presence on the high street and the of The Carphone Warehouse's retail future of the industry as a whole. It interests. Plans were made to open would not have been taken lightly as up to 200 so-called 'Big Box' stores reports suggested closing down would throughout the UK with the first one cost Best Buy and Carphone Ware- opening in Thurrock, Essex in April house around £100 million. 2010. However, facing strong competi One option being considered was tion, a lack of brand recognition by UK selling its stores to the UK's fourth larg- consumers and the rapid growth of est supermarket group by market share, online retailing from firms like Amazon, Morrisons. Morrisons were reported to Best Buy found things difficult and by have expressed interest in acquiring January 2012 a decision was made to the stores, mostly in large out-of-town close down its 11 bricks and mortar retail sites, for its Kiddicare brand of retail operations following losses of baby, infant and small children's pro- around £62 million. ducts such as toys, pushchairs, cots The decision to close down was and so on. made after consideration was given to The reports caused interest in the commit more capital to its operations in markets and some surprise given the an attempt to secure the advantages of challenges that exist in that market for some of the same reasons that Best Buy found life difficult An increasing trend to purchase goods online and the economic climate had already seen retailers like Mothercare and its Early Learning Centre stores facing declining sales and profits. Kiddicare had been an almost exclusively online operation and so the decision by Morrisons to move into the bricks and mortar sector was seen as a high-risk move. Questions 1. For Morrisons, what is the differ- ence between the short run and the long run in this case? 2. Explain some of the reasons why Best Buy made such losses in the UK given its global size. 3. How might Carphone Warehouse and Best Buy have gained eco- nomies of scale if they had 'com- mitted new capital? Explain your reasoning 4. Why might Carphone Warehouse and Best Buy 'incur a cost of as much as £100 million' in closing down the stores? 5. I Mothercare is 'trouble? why might Morrisons believe it can suc- ceed with Kiddicare?

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