N4

In July 2012, Johnson Service Group decided to close 100 of its 460 dry cleaning shops in Britain. Sales at those outlets had declined by 2.7% in the first half of the year. However, Johnson did not know whether the fall in demand was due to weakness in the macroeconomy or consumers switching to machine-washable suits. a. What is the long-run break-even condition for a dry cleaner? b. Which of the following affects the long-run price of dry cleaning relatively more: (i) macroeconomic weakness; or (ii) a shift in consumer preference toward machine-washable suits? c. Using a suitable figure, illustrate how the Johnson Service Group's decision affected the market supply of dry cleaning services. (Hint: Assume any data necessary to draw the figures.) d. For a competing dry cleaner, was the Johnson Service Group's decision good or bad news?