Managerial Economics A Problem Solving Approach 1st Edition Luke M. Froeb, Brian T. McCann - Solutions

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ST1 0.2 Competitive Market Equilibrium. Competitive market prices are determined by the interplay of aggregate supply and demand; individual firms have no control over price.Market demand reflects an aggregation of the quantities that customers will buy at each price.Market supply reflects a
ST10.1 Market Supply. In some markets, cut-throat competition can exist even when the market is dominated by a small handful of competitors. This usually happens when fixed costs are high, products are standardized, price information is readily available, and excess capacity is present. Airline
Q10.10 The long-run supply curve for a given competitive firm can be written as Qp= -250+ 8P or P = $31.25 + $0.125Qp. Explain why the amount supplied by 50 such competitors is determined by multiplying the first expression by 50 rather than by multiplying the second expression by a similar amount.
Q10.9 Suppose that a competitive firm long-run supply curve is given by the expression Qp= —500 + 10P. Does this mean that the firm will supply —500 units of output at a zero price? If so, what does output of —500 units mean?
Q10.8 'Airline passenger service is a terrible highfixed cost business featuring fierce price competition.With uniform safety, customers pick the lowest airfare with the most convenient departures. Except for pilots, nobody in the airline business makes any money.' Use the competitive firm
Q10.7 'If excess profits are rampant in the oil business, why aren't the stockholders of industry giants like Exxon Mobil, Chevron Texaco, and Royal Dutch Petroleum making huge stock-market profits?' Discuss this statement.
Q10.6 'For smaller firms managed by their owners in competitive markets, profit considerations are apt to dominate almost all decisions. However, managers of giant corporations have little contact with stockholders, and often deviate from profit-maximizing behavior. Get real. Look at Tyco, for
Q10.5 'A higher minimum wage means some low wage workers will get fired because there will be less money available for labor costs. An international minimum wage, scaled according to the working conditions and cost of living in a particular country, would allow local workers to benefit without
Q10.4 The Worker Adjustment and Retraining Notification Act (WARN) requires employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.Advance notice gives workers and their families transition time to adjust to the prospective loss
Q10.3 Competitive firms are sometimes criticized for costly but superfluous product differentiation. Is there an easy means for determining if such efforts are in fact wasteful?
Q10.2 One way of inferring competitive conditions in a market is to consider the lifestyle enjoyed by employees and owners. In vigorously competitive markets, employee compensation tends to be meager and profits are apt to be slim. Describe the perfectly competitive marketstructure and provide some
Q10.1 Historically, the Regional Bell Operating Companies (RBOCs) had a monopoly on the provision of local voice phone service. Regulation has now been eased to permit competition from Competitive Local Exchange Carriers (CLECs), cable companies, satellite operators and wireless competitors. Is the
Opportunity for normal profits in long-run equilibrium. Ruthless price competition keeps P = MC and P-AR- AC.
Perfect dissemination of information. Cost, price, and product quality information is known by all buyers and all sellers.
Free entry and exit. Firms are not restricted from entering or leaving the industry.
Product homogeneity. The output of each firm is essentially the same as the output of any other firm in the industry.
Large numbers of buyers and sellers. Each firm produces a small portion of industry output, and each customer buys only a small part of the total.
D. What is the total return opportunity cost of the $6000 after-tax income constraint?
C. Calculate the amount of unrealized capital gain earned per year on this investment portfolio.
B. Solve this linear programming problem and interpret all solution values. Also determine the employee's expected before-tax and aftertax income levels.
P9.10 Optimal Output. Omaha Meat Products (OMP) produces and markets Cornhusker Plumpers, an extra-large frankfurter product being introduced on a test market basis into the St. Louis, Missouri, area. This product is similar to several others offered by OMP, and it can be produced with currently
P9.9 Revenue Maximization. Designed for Sales (DFS), Inc., an Evanston, Illinois-based designer of single-family and multifamily housing units for real estate developers, seeks to determine an optimal mix of output during the current planning period. DFS offers custom designs for singlefamily
P9.8 Profit Maximization. Creative Accountants, Ltd., is a small San Francisco-based accounting partnership specializing in the preparation of individual (7) and corporate (C) income tax returns. Prevailing prices in the local market are $125 for individual tax return preparation and$250 for
P9.7 Cost Minimization. Carolina Power and Light (CP&L) is a small electric utility located in the Southeast. CP&L currently uses coal-fired capacity to satisfy its base load electricity demand, which is the minimum level of electricity demanded 24 hours per day, 365 days per year.
P9.6 Optimal Portfolio Decisions. The James Bond Fund is a mutual fund (open-end investment company) with an objective of maximizing income from a widely diversified corporate bond portfolio. The fund has a policy of remaining invested largely in a diversified portfolio of investment-grade bonds.
P9.5 Optimal Credit Policy. Kate Warner, a senior loan officer with Citybank in Cleveland, Ohio, has both corporate and personal lending customers. On average, the profit contribution margin or interest rate spread is 1.5 per cent on corporate loans and 2 per cent on personal loans.This return
P9.3 LP Setup and Interpretation. The Syflansyd Nut Company has enjoyed booming sales following the success of its 'Sometimes You Feel Like a Nut, Sometimes You Don't' advertising campaign. Syflansyd packages and sells four types of nuts in four different types of mixed-nut packages. These products
P9.2 Fixed Input Combinations. Cherry Devices, Inc., assembles connectors and terminals for electronic products at a plant in New Haven, Connecticut. The plant uses labor (L)and capital (K) in an assembly line process to produce output (Q), where?
P9.1 LP Basics. Indicate whether each of the following statements is true orfalse and explain why.A. Constant returns to scale and constant input prices are the only requirements for a total cost function to be linear.B. Changing input prices will always alter the slope of a given isocost line.C.
ST9.2 Profit Maximization. Interstate Bakeries, Inc., is an Atlanta-based manufacturer and distributor of branded bread products. Two leading products. Low Calorie, Qy\, and High Fiber, Qg, bread, are produced using the same baking facility and staff. Low Calorie bread requires 0.3 hours of worker
Q9.10 How are the solution values for primal and dual linear programming problems actually employed in practice?
3. What does it mean if a dual variable or shadow price equals zero?
2. What interpretation can be given to the dual variables called the shadow prices orimplicit values?
1. What is the dual objective function?
Q9.9 The primal problem calls for determining the set of outputs that will maximize profit, subject to input constraints.
Q9.8 Will maximizing a profit contribution objective function always resultin also maximizing total net profits?
Q9.7 In linear programming, why is it so critical that the number of nonzero-valued variables exactly equal the number of constraints at corners of the feasible space?
Q9.6 Is the number of isocost, isorevenue, or isoprofit lines in a typical two-input bounded feasible space limited?
Q9.5 Describe the relative distance method used in graphic linear programming analysis.
Q9.4 Assume that output can be produced only using processes A and B. Process A requires inputs L and K to be combined in the fixed ratio 2L:4K, and process B requires 4L:2K. Is it possible to produce output efficiently using 3L and 3K7 Why or why not?
Q9.3 Do equal distances along a given production process ray in a linear programming problem always represent an identical level of output?
Q9.2 Why can't linear programming be used in each of the following circumstances?A. Strong economies ofscale exist.B.As the firm expands output, the prices of variable factors of production increase.C. As output increases, product prices decline.
Q9.1 Give some illustrations of managerial decision situations in which you think the linear programming technique would be useful.
P8.10 Degree of Operating Leverage. Untouchable Package Service (UPS) offers overnight package delivery to Canadian business customers. UPS has recently decided to expand its facilities to better satisfy current and projected demand. Current volume totals 2 million packages per week at a price of
P8.9 Learning Curves. The St. Thomas Winery plans to open a new production facility in the Napa Valley of California. Based on information provided by the accounting department, the company estimates fixed costs of $250000 per year and average variable costs of A\/C= $10 + $0.01Q where AVC is
P8.8 Multiplant Operation. Appalachia Beverage Company, Inc. is considering alternative proposals for expansion into the Midwest. Alternative 1: Construct a single plant in Indianapolis, Indiana, with a monthly production capacity of 300000 cases, a monthly fixed cost of $262500, and a variable
P8.7 Cost Elasticity. Power Brokers, Inc. (PBI), a discount brokerage firm, is contemplating opening a new regional office in Providence, Rhode Island. An accounting cost analysis of monthly operating costs at a dozen of its regional outlets reveals average fixed costs of $4,500 per month and
P8.5 Profit Contribution. Angelica Pickles is manager of a Quick Copy franchise in White Plains, New York. Pickles projects that by reducing copy charges from 5
P8.4 Accounting and Economic Costs. Three graduate business students are considering operating a fruit smoothie stand in the Harbor Springs, Michigan, resort area during their summer break. This is an alternative to summer employment with a local firm, where they would each earn $6000 over the
P8.3 Incremental Cost. South Park Software, Inc. produces innovative interior decorating software that it sells to design studios, home furnishing stores, and so on. The yearly volume of output is 15000 units. Selling price and costs per unit are as follows:
P8.2 Cost Curves. Indicate whether each of the following involves an upward or downward shift in the long-run average cost curve or, instead, involves a leftward or rightward movement along a given curve. Also indicate whether each will have an increasing, decreasing, or uncertain effect on the
P8.1 Cost Relations. Determine whether each of the following is true or false. Explain why.A. Average cost equals marginal cost at the minimum efficient scale of plant.B. When total fixed cost and price are held constant, an increase in average variable cost will typically cause a reduction in the
ST8.1 Learning Curves. Suppose Modern Merchandise, Inc., makes and markets do-ityourself hardware, housewares, and industrial products. The company's new Aperture Miniblind is winning customers by virtue of its high quality and quick order turnaround time. The product also benefits because its
Q8.8 With traditional medical insurance plans, workers pay a premium that is taken out of each paycheck and must meet an annual deduction of a few hundred dollars. After that, insurance picks up most of their health-care costs. Companies complain that this gives workers little incentive to help
Q8.7 The president of a small firm has been complaining to the controller about rising labor and material costs. However, the controller notes that average costs have not increased during the past year.Is this possible?
Q8.6 The definition of point output elasticity is Eq = 3Q/Q dX/X (X represents all inputs), whereas the definition of point cost elasticity is £q= 9C/C dQ/Q.Explain why £q > 1 indicates increasing returns to scale, whereas fc< 1 indicates economies of scale.
Q8.5 What is the relation between production functions and cost functions? Be sure to include in your discussion the effect of competitive conditions in input factor markets.
Q8.4 Suppose the Big Enchilada restaurant has been offered a binding 1-year lease agreement on an attractive site for €5200 per month. Before the lease agreement has been signed, what is the incremental cost per month of site rental? After the lease agreement has been signed, what is the
Q8.3 Southwest Airlines offers four flights per weekday from Cleveland, Ohio, to Tucson, Arizona. If adding a fifth flight per weekday would cost $15000 per flight, or$110 per available seat, calculate the incremental costs borne by Southwest following a decision to go ahead with a fifth flight per
Q8.2 Assume that 2 years ago, you purchased a new Jeep Wrangler SE 4WD with a soft top for $16500 using 5-year interest-free financing. Today, the remaining loan balance is $9900 and yourJeep has a trade-in value of $9500. What is your opportunity cost of continuing to drive the Jeep?Discuss the
Q8.1 What advantages or disadvantages do you see in using current costs for tax and stockholder reporting purposes?
7A.1 Assume that a firm produces its product in a system described in the following production function and price data Q = 3X+5Y + XY Px = $3 Py =$6 Here, X and Y are two variable input factors employed in the production of Q.
2. A multiple regression analysis based upon the data contained in Table 7.5 reveals the following (f statistics in parentheses)Profit/Emp.= €1,269.016 + 0.220 Ind.Profit/Emp.-l-(0.17) (2.33)0.084 Rev./Emp.+ 0.004 Ass./Emp.(8.22) (1.20)R 2= 89.7%, Fstatistic = 75.48 Interpret these results. Is
1. What firm-specific and industry-specific factors might be used to explain differences among giant corporations in the amount of revenue per employee and profit per employee?
P7.10 Production Function Estimation. Consider the following Cobb-Douglas production function for bus service in a typical metropolitan area Q- b0L b^kb 2Fb^
P7.9 Net Marginal Revenue. Crane, Poole & Schmidt, LLC, is a successful Boston-based law firm. Worker productivity at the firm is measured in billable hours, which vary between partners and associates. Partner time is billed to clients at a rate of $250 per hour, whereas associate time is billed at
P7.8 Optimal Input Level. Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use ofspot radio advertising on WHAM-AM, with each 30-second ad costing $100. During the past year, the following
P7.7 Marginal Revenue Product of Labor. To better serve customers interested in buying cars over the Internet, Smart Motors, Inc., hired Nora Jones to respond to customer inquiries, offer price quotes, and write orders for leads generated by the company's website.During the last year, Jones
P7.6 Optimal Input Mix. The First National Bank received 3000 inquiries following the latest advertisement describing its 30-month IRA accounts in the Boston World, a local newspaper.The most recent ad in a similar advertising campaign in Massachusetts Business, a regional business magazine,
P7.5 Optimal Compensation Policy. Cafe-Nervosa.com, based in Seattle, Washington, is a rapidly growing family business that offers a line of distinctive coffee products to local and regional coffee shops. Assume founder and president Frasier Crane is reviewing the company's sales force compensation
P7.4 Returns to Scale. Determine whether the following production functions exhibit constant, increasing, or decreasing returns to scale.A. Q = 0.5X + 27 + 40Z B. Q = 3L-M0K + 500 C. Q = 4A + 6B + 8AB D. Q = 7L2+ 5LK + 2K2 E. Q = 10La5fC0-3
P7.3 Compensation Policy. 'Pay for performance' means that employee compensation closely reflects the amount of value derived from each employee's effort. In economic terms, the value derived from employee effort is measured by net marginal revenue product. It is the amount of profit generated by
P7.2 Production Function Concepts. Indicate whether each of the following statements is true or false. Explain your answers.A. Decreasing returns to scale and increasing average costs are indicated when sq< 1.B. If the marginal product of capital falls as capital usage grows, the returns to capital
P7.1 Marginal Rate of Technical Substitution. The following production table gives estimates of the maximum amounts of output possible with different combinations of two input factors, X and Y. (Assume that these are just illustrative points on a spectrum of continuous input combinations.)
ST7.2 Production Function Estimation. A manufactory company has estimated the following multiplicative production function for one of its products in a market using monthly production data over the past 7./i years (30 observations)
ST7.1 Optimal Input Usag6. A medical company provides routine testing services for blood banks in an area. Tests are supervised by skilled technicians using equipment produced by two leading competitors in the medical equipment industry. Records for the current year show an average of 27 tests per
Q7.10 Explain why company productivity is important to managers, employees, and investors. Is superior worker productivity a necessary and sufficient condition for above-average compensation?
Q7.9 Cite some ways for increasing productivity growth in the USA.
Q7.8 Powerful unions like the AFL-CIO are staunch advocates for increasing the federal minimum wage despite the fact that highly trained and experienced AFL-CIO workers tend to earn far more than the minimum wage. Can you give an economic rationale for the AFL-CIO's position?
Q7.7 'Oregon's minimum wage increased from $4.75 in 1996 to $5.50 in 1997, to $6 in 1998, and to $6.50 in 1999. According to a study by the Oregon Center for Public Policy, the minimum wage increases in Oregon did not harm welfare recipients' opportunities to find work. In fact, a larger percentage
Q7.6 Clarify how profits are maximized and the optimal level of employment is achieved in a competitive labor market when the price of labor Pl= MRPl.
Q7.5 Explain why the MP/P relation is deficient as the sole mechanism for determining the optimal level of resource employment.
Q7.4 'Hourly wage rates are an anachronism.Efficiency requires incentive-based pay tied to performance.' Discuss this statement.
Q7.3 Commission-based and piece-rate-based compensation plans are commonly employed by businesses. Use the concepts developed in the chapter to explain these phenomena.
Q7.2 'Output per worker is expected to increase by 10 per cent during the next year. Therefore, wages can also increase by 10 per cent with no harmful effects on employment, output prices, or employer profits.'Discuss this statement.
Q7.1 Is use of least-cost input combinations a necessary condition for profit maximization? Is it a sufficient condition? Explain.
G20-2. Undoing Vertical Relationships Identify a vertical relationship in your company, and determine whether it could be managed more profitably by untying, unbundling, inclusion of rivals, or vertical disintegration. Clearly identify the source of the profitability (regulatory evasion,
G20-1. Managing Vertical Relationships Identify a vertical relationship in your company and determine whether it could be managed more profitably by tying, bundling, exclusion, or vertical integration. Clearly identify the source of the profitability (regulatory evasion, elimination of double
20-5. Herbicide Integration Suppose the herbicide manufacturer mentioned in the chapter can vertically integrate into just one of the downstream retail businesses, either home gardening or farming, but not both. Which one would allow the manufacturer to price discriminate?
20-4. Copier Service Suppose a copy machine manufacturer uses independent service operators (ISOs) to service its copiers. Recently, its machines have become more complex and difficult to service, and the manufacturer is concerned that the ISOs lack the necessary expertise to service the machines
20-3. Artificial Tooth Manufacturer An artificial tooth manufacturer sells teeth to distributors through a dealer network.The dealers sell to dental labs, which construct dentures for consumers. The manufacturer has spent a great deal of money advertising its teeth, and it has become the most
20-2. Tape Manufacturer A transparent adhesive tape manufacturer produces a wide array of products, including sticky notes, as well as branded and unbranded adhesive tape of different sizes and shapes.Large office supply retailers, like Office Depot and Staples, carry only the most popular SKUs
20-1. Local Phone Companies State utility commissions typically regulate local phone companies, but local phone companies also offer long-distance service to their customers. Rival long-distance carriers also connect to local phone lines to provide long-distance service to customers. Recently, the
5. In which of the following cases might you expect to find a manufacturer granting exclusive territories?a. A pet supply chain that requires heavy local advertising to drive salesb. Custom computer sales that require a good deal of consultationc. A submarine sandwich chain that relies on its
4. Giganto Grocery Chain wishes to sell Boldo detergent. Boldo’s manufacturer, CPG Industries, will not supply Giganto unless Giganto agrees to carry all of CPG’s other detergents. This is an example ofa. exclusion.b. tying.c. territory restriction.d. bundling.
3. In which of the following instances would an acquisition make the most sense?a. The acquiree is a very profitable company.b. Synergies exist between the acquirer and the acquiree.c. Integration costs are low between the two.d. Synergy benefits outweigh the costs of integration.
2. Which of the following is an example of vertical integration?a. A custom software company purchasing a competing software firmb. A soft drink producer buying one of its bottling plantsc. A coal manufacturer purchasing a nuclear power plantd. A gourmet cheese company purchasing a wine maker
1. Alpha Industries is considering acquiring Foxtrot Flooring. Foxtrot is worth $20 million to its current owners under its existing operational methods. Due to some opportunities for synergies between the two companies, Alpha believes that Foxtrot is worth $25 million as part of Alpha Industries.
G19-4. Functional Silos versus Process Teams Is your company organized around functional divisions? If so, what kind of problems does this cause? What can you do to fix these problems? Compute the profit consequences of fixing the problem.
G19-3. Budget Games Does your company tie compensation to meeting a budget? If so, what kind of problems does this practice cause? What can you do to fix these problems? Compute the profit consequences of changing the process.

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Managerial Economics A Problem Solving Approach 1st Edition Luke M. Froeb, Brian T. McCann - Solutions

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