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Economics
Because of economies of scale, it is sometimes more cost effective for a firm to operate a large plant at less than maximum efficiency than a small plant at maximum efficiency. Do you agree with this
When a company states its financial results in its annual report, it typically presents its income statement in the following way: Revenue - ................................ (lost of Goods Sold
Overheard at the water cooler: "I think our company should take advantage of economies of scale by increasing our output thereby spreading out our overhead costs." Would you agree with this statement
Discuss the estimation of short-run cost functions. Which regression method is most frequently used, and what are some of the problems a researcher will encounter? What adjustment factors may have to
Discuss the estimation of long-run cost functions. Which regression method is most frequently used, and what are some of the problems a researcher her will encounter? What adjustment factors may have
Comment briefly on the following methods of cost estimation: a. Engineering costs b. Survivorship principle Discuss the strengths and shot (comings of these methods and the circumstances under which
Point out which costs in the preceding question are considered "relevant" and which are considered "irrelevant" to a business decision. Explain why.
Explain the relationship between a firm's short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production.
"If it were not for the law of diminishing returns, a firm's average cost and average variable cost would not increase in the short run." Do you agree with this statement? Explain.
Explain the distinction made in economic analysis between the short run and the long run.
Define economies of scale. How does this relate to returns to scale? Cite and briefly discuss the main determinants of economies of scale.
Define diseconomies of scale. Cite and briefly discuss the main determinants of this phenomenon.
Define economies of scope. Is this concept related to economies of scale? Explain.
Explain the relationship between the learning curve and a firm's cost function. Would economists consider the learning curve a short-run or a long-run phenomenon?
Based on your knowledge of the definition of the various measures of short-run cost, complete this table.
The economist for the Grand Corporation has estimated the company's cost function, using time series data, to be TC = 50 + 16Q - 2Q2 + 0.2Q3 where TC = Total cost Q = Quantity produced per period a.
Discuss the following three cost functions:TC = 20 + 4QTC = 20 + 2Q + 0.5Q2TC = 20 + 4Q- 0.1Q2a. Calculate all cost curves:• Total cost• Total fixed cost• Total variable cost• Average total
The Central Publishing Company is about to publish its first reference hook in managerial economics. It is now in the process of estimating costs. It expects to produce 10,000 copies during its first
The Big Horn Corporation commissioned an economic consultant to estimate the company's cost function. The consultant collected a large amount of data for a number o years from the books of the
Use the total cost curve below to answer the following questions.a. For what values of output is marginal product of labor decreasing? What is true about marginal cost over this range of output? b.
The Cobb Douglas Costs Excel App provides a nice link between the Cobb Douglas (CD) production analysis of Chapter 6 (see also Cobb Douglas Production Excel App) and the cost analysis in this
Undertake a comparative statics analysis using the Cobb Douglas Costs Excel App file by filling in the following table. Increase each parameter by 50 percent holding the other parameters at their
Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs of New York City. Recently, a large chemical firm offered him a position as a senior engineer designing plants for
You are given the following cost functions:TC = 100 + 60Q - 3Q2 + 0.1Q3 TC = 100 + 60(J + 3Q2TC = 100 + 60Qa. Compute the average variable cost, average cost, and marginal cost for each function.
Decide whether the following statements are true or false and explain why. a. A decision maker must always use the historical cost of raw materials in making an economic decision. h. The marginal
Indicate the effect that each of the following conditions will have on a firm's average variable cost curve and its average cost curve. a. The movement of a brokerage firms administrative offices
You are given the following long-run cost function: TC = 160Q- 20Q2 + 1.2Q3 a. Calculate the long-run average cost and marginal cost Plot these costs on a graph. b. Describe die nature of this
During the last 50 years or so, main studies of cost curves have been published. The results of two of these are summarized here. In each case, interpret the equation and discuss the shapes of the
You have been presented with the following cost data and asked to fit a statistical cost function: Quantity Total Cost 10 .................................... 104.0 20
What are the main characteristics of a perfectly competitive market that cause buyers and sellers to be price takers? Explain.
Explain why the P = MC rule is the same as the MR = MC rule for perfectly competitive firms.
Explain why a price-setting firm will always set its revenue-maximizing price below the price that would maximize its profit.
Provide some examples of business cases that a typical firm must consider. If possible, use current examples reported in the business press.
How "perfectly" competitive do you think are the following markets: (1) stock market, (2) bond market, (3) foreign exchange market, (4) world sugar market, and (5) world oil market? Explain.
Explain how the concept of "economic profit" might help explain the rationale for the government's granting of monopolies to those firms that protect their product with a patent.
The perfectly competitive model is not very useful for managers because very few markets in the U.S. economy are perfectly competitive." Do you agree with this statement? Explain. Regardless of
Explain why the demand curve facing a perfectly competitive firm is assumed to be perfectly elastic (i.e., horizontal at the going market price).
Use the model of perfect competition described in this chapter to explain, illustrate, or elaborate on the following statements. a. "Increasing competition from new firms entering the market is good
Why do economists consider zero economic profit to be "normal"?
"Economic profit" is a theoretical concept used to help explain the behavior of firms in competitive markets. Suggest ways in which this concept can actually be measured.
Following is the graphical representation of a short-run situation faced by a perfectly competitive firm. Is this a good market for this firm to be in? Explain. What do you expect will happen in the
"In a perfectly competitive market, a firm has to be either good or lucky." Explain what is meant by this statement. Illustrate your answer with the use of the diagrams shown in Figures 8.5, 8.6, and
Indicate whether each of the following statements is true or false and explain why. a. A competitive firm that is incurring a loss should immediately cease operations. b. A pure monopoly does not
Kelson Electronics, a manufacturer of DVRs, estimates the following relation between its marginal cost of production and monthly output: MC = $150 + 0.005Q a. What does this function imply about the
A manufacturer of electronics products is considering entering the telephone equipment business. It estimates that if it were to begin making wireless telephones, its short-run cost function would be
This same manufacturer of electronics products has just developed a handheld computer. Following is the cost schedule for producing these computers on a monthly basis. Also included is a schedule of
The manufacturer of high-quality flatbed scanners is trying to decide what price to set for its product. The costs of production and the demand for the product are assumed to be as follows: TC =
The demand and cost function for a company are estimated to be as follows: P= 100 - 8Q TC = 50 + 80Q - 10Q2 + 0.6Q3 a. What price should the company charge if it wants to maximize its profit in the
Overheard at the water cooler: "The demand and cost estimates that were provided at the meeting are very useful [Q = 90 - 6.5P and TC = 150 + 3.5QJ. Unfortunately, what we didn't realize at the time
Use the following equation to demonstrate why a firm producing at the output level where MR = MC will also be able to maximize its total profit (i.e., be at the point where marginal profit is equal
Briefly explain the structure-conduct-performance approach to the study of industrial economics.
Compare and contrast Porter's five Forces model with the- lour basic types of markets first described in chapter 8 in the section "Market Structure."
In 2002, Philip Morris sold its Miller Brewing Division to South African Breweries. a. What impact do you think this transaction had on the market structure of the beer industry in the United States?
Assume firms in the short run are earning above-normal profits. Explain what will happen to these profits in the long run for the following markets: a. Pure monopoly b. Oligopoly c. Monopolistic
In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets. Cite as many examples as you
In the short run, firms that seek to maximize their market share will tend to charge a lower price for their products than firms that seek to maximize their profit. Do you agree with this statement?
Explain why it is sometimes difficult to apply the MR = MC rule in actual business situations.
Define mutual interdependence.
How does one determine whether a market is oligopolistic? Is it important for managers to recognize the existence of oligopolistic competitors in the markets in which their companies operate? Explain.
In the following list are a number of well-known companies and the products that they sell. Which of the four types of markets (perfect competition, monopoly, monopolistic competition, and oligopoly)
Suppose short-run inverse demand in a monopolistically competitive market is represented by: p(x) = 18 - 0.2x. Cost is given by: TC(x) = 320 + 2x + 0.05x2.a. (liven these demand and cost conditions,
Two natural boundaries to rival reaction are for the rival to not react (or not follow) a firm's actions or to follow a firm's actions. Consider pricing in a differentiated product market. If all
Oligopolistic models are based on behavioral assumptions. One behavioral assumption associated with differentiated product markets is that price increases will not be matched, but price decreases
This problem examines the behavior of marginal revenue in the kinked demand model and requires completion of Problem 12. a. What is Q ≤ Qb? Provide an equation for MR in this instance and graph
Consider the pizza market in a small college town. Analyze this market based on the following assumptions: i. The market is in long-run equilibrium. ii. Each pizza shop sells 100 pizzas per
Use the same data presented in Problem 1 to answer the following questions: a. Explain the impact on the optimal price of designating the "miscellaneous" cost item as fixed versus variable. b. Under
A firm in an oligopolistic industry has identified two sets of demand curves. It the firm is the only one that changes prices (i.e.. other fn 111s do not follow), its demand curve takes the form Q =
Indicate whether each of the following statements is true or false, and explain why. a. A competitive firm that is incurring a loss should immediately cease operations. b. A pure monopoly does not
A phenomenon in the retail merchandising of food and clothing in the United Slates and the United Kingdom is the growing popularity of private-label (also called store-brand) products. These products
Suppose three firms lace the same total market demand for their product. This demand is: P Q $80 .......... 20.0(H) 70 ............ 25,000 60 ............ 30.000 50 ............ 35.000 Suppose
A firm has the following short-run inverse demand and cost schedules lor a particular product: P = 45 - 0.2Q TC = 500 + 5Q a. At what price should this firm sell its product? b. If this is a
Redo Problem 7a to e with an initial inverse demand given by: P = 45 - Q In Problem 7 a. At what price should this firm sell its product? b. If this is a monopolistically competitive firm. What do
Professor Michael Porter's generic strategy options for competing are the differentiation approach and the cost leadership approach. The first involves competing In having a belter product and the
"If a company sets its prices on the basis of a cost-plus calculation, it cannot possibly suffer a loss on its products." True or false? Comment
Telephone companies charge different rates for calls during the day, in the evening, and at night or weekends. Do you consider this to be price discrimination?
Airline ticket prices may differ with respect to when the ticket is bought, how long a passenger remains on the trip (e.g., over a weekend) and other variables. Are these differences a case of price
Does cost-plus pricing necessarily ignore the demand curve?
Define and describe (giving examples): a. Transfer pricing b. Psychological pricing c. Price skimming d. Penetration pricing
Under what circumstances would a discriminating monopolist produce a more socially optimal quantity than a nondiscriminating monopolist? Is there any situation under which a discriminating monopolist
Price discrimination is often defended on the basis of fairness. What is meant by this statement? Comment on its validity.
Differentiate barometric price leadership and dominant price leadership.
Is there a similarity between cartel pricing and monopoly pricing?
What conditions are favorable to the formation and maintenance of a cartel?
Can government be a potent force in the establishment and maintenance of monopolistic conditions? Name and describe such occurrences.
Describe the properties of the Baumol revenue maximization model. Do you consider this to be a good alternative to the profit maximization model?
There are only two firms in the widget industry. The total demand for widgets is 0 = 30 - 2P. The two firms have identical cost functions, TC = 3 + 10Q. The two firms agree to collude and act as
The Prime Company produces two products, X and Y. They are produced jointly so for each X manufactured a unit of Y is also produced. The joint cost function is TC = 50 + 2Q + .5Q2 Q represents the
George's Pants Store sells a particular brand of slacks. It recently decreased the price of a popular brand by 5 percent. This decrease was followed by a 20 percent increase in sales. The marginal
A firm makes two products, x and y. Inverse demand for each shows that pricing in one market depends on sales in the other according to the equations:Px = 1000 - 20x + 3y and Py = 500 - by + x.The
Redo Problem 12 given the following inverse demand functions:Px = 1000 - 20x - 3y and Py = 500 - 5y - 2xIn Problem 12a. What bundle of products (x*, y*) should the firm produce?b. What prices will
Redo Problem 12 given the following inverse demand functions:Px = 1000 - 20x and Py = 500 - 5yIn Problem 12a. What bundle of products (x*, y*) should the firm produce?b. What prices will the firm be
An amusement park, whose customer set is made up of two markets, adults and children, has developed demand schedules as follows:The marginal operating cost of each unit of quantity is $5. (Hint:
The Bramwell Corporation has estimated its demand function and total cost function to be as follows: Q = 25 - 0.05P TC = 700 + 200Q Answer the following questions either by developing demand and cost
The Great Southern Paper Company has the following marginal cost schedule for producing pulp: Quantity (tons) Marginal Cost 1 ......................... $18 2 .......................... 20 3
Each pair of Fancy Shoes costs Bradbury Footwear Stores $30. Bradbury's economist has estimated the point elasticity to be -1.8. What price should Bradbury charge if it wants to maximize profits?
An airplane manufacturer has annual fixed costs of $50 million. Its variable costs are expected to be $2 million per plane. If the manufacturer wants to earn a 10 percent rate of return on its
Schultz's Orchard grows only two types of annual fruit-melons and strawberries-and over the years it has been able to chart two production levels and resulting total costs. The figures are shown in
The Prestige Office Equipment Company produces and sells different types of office furniture. One of the important items it sells is a high-quality desk. During the past year, Prestige sold 5,000 of
The royalties received by an author for writing a college text are frequently set at a rate of about 15 percent of the publisher's book price. This may create a conflict between the goals of a
Is there an informational asymmetry in the new car market?
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