Levi’s has an advertising slogan: “Quality never goes out of style.”

| November 24, 2016

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.

Create a graph showing the price (labeled as P1) that Levi’s changes. Also, identify the markup.

How does Levi’s advertising affect their profits?

Do Levi’s or the generic producers have a stronger incentive to maintain quality control? Why?

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