Maple Tree Accessory Shop
(3 pages of text)
The owner of an accessory shop in China is unsure whether it was a wise choice to start his own business. The owner has identified that if the shop continues as is, he may face a loss. He must come up with a solution. Should he accept an employee’s suggestion to cut prices in order to compete with low-end street stalls? Should he shut down the shop in the short run or even exit the market? Whichever path he chooses, he can approach the decision using the concepts of elasticity and cost analysis popular in microeconomics.
This case involves elements of economics, marketing, strategic management and entrepreneurship. The objectives of the case are to provide training in elasticity and cost analysis. Price elasticity of demand is easy to understand, although students sometimes have difficulty measuring it when given specific goods from the real world of business, where information is neither complete nor conceptualized. Cost analysis is quite important in business decision-making in relation to cost–revenue–profit analysis, short-run shutdown and long-run exit. The case analysis requires students to engage with the fixed and variable cost concepts, which can be used to illustrate breakeven analysis.
The case can be used to help students differentiate accounting profit from economics profit. In an economics course, the case can be used after introducing basic principles of economics, especially opportunity cost. It also provides students with an opportunity to use incremental revenue and incremental expenses. The case is particularly helpful for those who want to start their own business.
China, Small, 2013
$3.15 CAD / $3.10 USD Printed Copy
$2.65 CAD / $2.62 USD Permissions
$2.65 CAD / $2.62 USD Digital Download