Levi’s has an advertising slogan: “Quality never goes out of style.” Consumers can buy other kinds of jeans, including off-brands. The manufacturers of off-brand, or generic, jeans do not advertise. Assume that the average total cost of producing Levi’s and generic jeans is the same.
A) Create a graph showing the price (labeled as P1) that Levi’s changes. Also, identify the markup.
B) How does Levi’s advertising affect their profits?
C) Do Levi’s or the generic producers have a stronger incentive to maintain quality control? Why?