Your private equity firm owns Brumana Pugliese (BP), a leadi…

Your private equity firm owns Brumana Pugliese (BP), a leading scooter manufacturer in Brazil. Analysis shows the income elasticity of demand for scooters in Brazil is εi,q=−1.5, and the price elasticity is εp,q=−2.8. Macroeconomic forecasts predict a 20% income increase for the lowest income bracket in Brazil over the next year. a) While rising incomes are generally positive, what specific economic fact regarding BP’s scooters should cause concern for the company’s future sales in Brazil, given the expected income growth? b) Based on your answer in (a), what is likely to happen to the market demand and equilibrium price of BP scooters in Brazil? Explain briefly.

Costco requires customers to buy an annual membership ($60/y…

Costco requires customers to buy an annual membership ($60/year) to shop in its stores. Inside, product prices are very low, often near Costco’s marginal cost, resulting in small or non-existent per-item markups. Despite low markups, Costco is highly profitable. Using the concepts of consumer surplus, producer surplus, and pricing strategies discussed in this course, explain the economic logic behind Costco’s successful business model. Why can this strategy be more profitable than a traditional high-markup retail model?