Priority Mail has been one of the most profitable products for the U.S. Postal Service, growing six times faster than first-class deliveries over the period from 1995 to 1999 and accounting for almost 8 percent of the Postal Service’s mail revenue. In 2000, the Postal Service adopted the strategy of raising Priority mail rates by 16 percent to boost its revenue. Bear Creek Corporation planned to ship 20 percent fewer Priority Mail packages in response to the rate increase. If this corporation’s response is typical for Priority mail customers, did the Postal Service make a mistake with the rate increase? Commenting on the nature of demand elasticity of Priority Mail service (from the given information), carefully analyze and explain.
You were recently hired to replace the manager of the Roller Division at a major conveyor-manufacturing firm, despite the manager’s strong external sales record. The previous manager was very popular among the labor union at Roller Division as well since the production used quite a labor intensive technology. As you begin reviewing the company’s production information, you learn that labor is paid $12 per hour and the last worker hired produced 80 rollers per hour. The company rents roller cutters and crimping machines for $15 per hour, and the marginal product of capital is 110 rollers per hour. What do you think the previous manager could have done to keep his job? Explain your answer with necessary calculations.