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business
managerial economics

Managerial Economics 14th Revised Edition Mark Hirschey - Solutions

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Occidental Pacific University is a large private university in California that is known for its strong athletics program, especially in football. At the request of the Dean of the College of Arts & Sciences, a professor from the economics department estimated that student demand for student
Consider the following demand and supply equations for sugar:Qd = 1,000 −1,000P;Qs = 800 +1,000P.P is the price of sugar per pound and Q is the quantity of sugar in thousands of pounds.a. What are the equilibrium price and quantity for sugar?b. What is the value of net social welfare in this
, where Qx is monthly per family consumption of Blue Meanies, Px the price per unit of Blue Meanies, M median annual per family income($25,000), Py the price per unit of Apple Bonkers ($5.00) and W the hourly per worker wage rate ($8.60).a. What type of good is Apple Bonkers?b. What are the
+1.5 y ;Q P W x sx = 60 + 4 −
Yell-O Yew-Boats, Ltd. produces Blue Meanies. Consider the demand and supply equations for Blue Meanies:Q P M P x d= 150 − 2 x +
z , where Px is the price of Brand x, M per capita income, Py the price of Brand y, and Pz the price of Brand z. Assume that Px = $2, M = $20,000, Py = $4, and Pz = $4.a. With respect to changes in per capita income, what kind of good is Brand x?b. How are Brands x and y related?c. How are Brands x
y +
−
The market demand for Brand x has been estimated as:Q P M P P x d = 1,500 − 3 x −
What is consumer surplus and producer surplus? How can these concepts be used to evaluate changes in market efficiency?
Discuss the effect of a frost in Florida, which damaged a significant portion of the orange crop, on each of the following.a. Price of Florida orangesb. Price of California orangesc. Price of tangerinesd. Price of orange juicee. Price of apple juice
Large labor unions always support higher minimum-wage legislation even though no union maker earns just the minimum wage. Explain.
In recent years there has been a sharp increase in commercial and recreational fishing in the waters around Long Island. Illustrate the effect of “over fishing” on inflation-adjusted seafood prices at Long Island area restaurants.
After twenty years, John Puller decided to retire and sell his business consulting firm for $12.5 million. Since the company’s founding, profits have risen steadily at a rate of around 6 percent annually. Last year, the company generated after-tax profits of $250,000. At the current interest rate
The total revenue and total cost equations of a firm are TR = 25Q;TC = 100 + 20Q + 0.025Q2 .a. Graph total revenue, total cost, marginal revenue, marginal cost and total profit for output levels Q = 0 to Q = 200.b. What is this firm’s total profit equation?c. Use marginal analysis to determine
The following table summarizes the net cash flows of two mutually exclusive capital investment projects. If cash flows are realized at the end of each period, which project should be adopted at an interest rate of 12 percent?Period Project A Project B 1 100 350 2 200 300 3 250 200 4 300 200 5 350
In the last fiscal year Neptune Hydroponics generated $150,000 in operating profits. Neptune’s total revenues and total economic costs were$200,000 and $75,000, respectively. What is Neptune’s normal profit?
Tillie’s Trilbies estimates that revenues and expenditures for the next fiscal year are:Total Revenue $6,800,000 Cost of Materials 5,000,000 Cost of Labor 1,000,000 Advertising 100,000 Insurance 50,000 Rent 350,000 Miscellaneous Expenses 100,000a. Calculate Tilly’s accounting profit.b. Suppose
Firms that earn zero economic profit should close its doors and seek alternative investment opportunities. Do you agree? Explain.
It has been argued that profit maximization is an unrealistic description of the organizational behavior of large, publicly-held corporations.The modern corporation, so the argument goes, is too complex to admit to such a simple explanation of the managerial behavior. One alternative argument
Many owners of small businesses do not pay themselves a salary. What effect will this practice have on the calculation of the firm’s accounting profit? What effect will it have on the firm’s economic profit? Explain.
The Museum of Heroic Art (MOCHA) is a not-for-profit institution.For nearly a century, the mission of MOCHA has been to “extol and lionize the heroic human spirit.” MOCHA’s most recent exhibitions, which have featured such larger-than-life renditions of such pulpfiction super heroes as
Explain what it means to “think strategically.”
Explain why an analysis of strategic behavior is critical for achieving success in business.
Q6.10 What are the main characteristics of accurate forecasts?A. A simple regression model over the 1980-2003 period where the Y variable is the Disney year-end stock price and the X variable is Disney's earnings per share reads as follows (t statistics in parentheses)Pt = —$1,661 + $31.388EPSt ,
Q6.9 Cite some examples of forecasting problems that might be addressed using regression analysis of complex multiple-equation systems of economic relations.
Q6.8 Perhaps the most famous early econometric forecasting firm was Wharton Economic Forecasting Associates (WEFA), founded by Nobel Prize winner Lawrence Klein. A spin-off of the Wharton School of the University of Pennsylvania, where Klein taught, WEFA was merged with Data Resources, Inc., in
Q6.7 Would a linear regression model of the advertising-sales relation be appropriate for forecasting the advertising levels at which threshold or saturation effects become prevalent? Explain.
Q6.6 In prepared remarks before Congress in mid-2007.Federal Reserve chairman Ben Bernanke testified: 'The principal source of the slowdown in economic growth ...has been the substantial correction in the housing market,[and] The near-term prospects for the housing market remain uncertain.' What
Q6.5 Explain why revenue and profit data reported by shippers such as FedEx Corp. and United Parcel Service, Inc., can provide useful information about trends in the overall economy.
Q6.4 'Interest rates were expected to increase by 85 per cent of all consumers in the May 2004 survey, more than ever before,' said Richard Curtin, the director of the University of Michigan's Surveys of Consumers. 'More consumers in the May 2004 survey cited the advantage of obtaining a mortgage
Q6.3 Blue Chip Financial Forecasts gives the latest prevailing opinion about the future direction of the economy. Survey participants include 50 business economists from Deutsche Banc Alex. Brown, Banc of America Securities, Fannie Mae, and other prominent corporations. Each prediction is published
Q6.2 Forecasting the success of new product introductions is notoriously difficult. Describe some of the macroeconomic and microeconomic factors that a firm might consider in forecasting sales for a new teethwhitening product.
Q6.1 Discuss some of the microeconomic and macroeconomic factors a firm must consider in its own sales and profit forecasting.
Q5.10 Managers often study the profit margin-sales relation over the life cycle of individual products, rather than the more direct profit-sales relation. In addition to the economic reasons for doing so, are there statistical advantages as well? (Note: Profit margin equals profit divided by
Q5.9 In a regression-based estimate of a demand function, the beta coefficient for advertising equals 3.75 with a standard deviation of 1.25 units. What is the range within which there can be 99 per cent confidence that the actual parameter for advertising can be found?
Q5.8 A simple regression TR = a + bQ is not able to explain 19 per cent of the variation in total revenue.Whatis the coefficient of correlation between TR and Q?
Q5.7 If a regression model estimate of total profit is$50000 with a standard error of the estimate of $25000, what is the chance of an actual loss?
Q5.6 How do linear and log-linear models differ in terms of their assumptions aboutthe nature ofdemand elasticities?
Q5.5 'Demand for higher education is highest among the wealthy. This has led to an upward-sloping demand curve for college education. The higher the tuition charged, the greater is demand.' Discuss this statement.
Q5.4 'Rapid innovation in the development, assembly, and delivery of personal computers has led to a sharply downward-sloping market demand curve for Dell, Inc.' Discuss this statement.
Q5.3 Explain how shifting demand and supply curves makes market demand estimation difficult.
Q5.2 'When I go to the grocery store, I find centsoff coupons totally annoying. Why can't they just cut the price and do away with the clutter?' Discuss this statement and explain why coupon promotions are an effective means of promotion for grocery retailers, and popular with many consumers.
Q5.1 Describe some of the limitations of market experiments.
P4.10 Optimal Pricing. In an effort to reduce excess end-of-the-model-year inventory, Harrison Ford offered a 1 per cent discount off the average price of 4WD Escape Gas-Electric Hybrid SUVs sold during the month of August. Customer response was wildly enthusiastic, with unit sales rising by 10 per
P4.9 Utility Theory. Determine whether each of the following statements is true or false.Explain why.A. According to the theory of consumer behavior, more is always better.B. Consumers must understand how much one product is preferred over another in order to rank order consumption alternatives.
P4.8 Cross-Price Elasticity. The South Beach Cafe recently reduced appetizer prices from$12 to $10 for afternoon 'early bird' customers and enjoyed a resulting increase in sales from 90 to 150 orders per day. Beverage sales also increased from 300 to 600 units per day.A. Calculate the arc price
P4.7 Law of Diminishing Marginal Utility. Indicate whether each of the following statements is true or false. Explain why.A. The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, the utility gained from consumption
P4.6 Income Elasticity. Ironside Industries, Inc., is a leading manufacturer of tufted carpeting under the Ironside brand. Demand for Ironside's products is closely tied to the overall pace of building and remodeling activity and, therefore, is highly sensitive to changes in national income. The
P4.5 Indifference Curves. Suggest briefly whether each of the following statements about indifference curves that show preferences between goods and services is true or false and defend your answer.A. Consumers prefer higher indifference curves that represent greater combinations of goods and
P4.4 Cross-Price Elasticity. B B Lean is a catalog retailer of a wide variety of sporting goods and recreational products. Although the market response to the company's spring catalog was generally good, sales of B. B. Lean's $140 deluxe garment bag declined from 10000 to 4800 units. During this
P4.3 Budget Constraints. Holding all else equal, indicate how each of the following changes would affect a budget constraint that limits consumption of goods (Y) and services (X).Explain your answer.A. Deflation that uniformly drops the price of all goods and services.B. Inflation that consistently
P4.2 Advertising Elasticity. Enchantment Cosmetics, Inc., offers a line of cosmetic and perfume products marketed through leading department stores. Product manager Erica Kane recently raised the suggested retail price on a popular line of mascara products from $9 to $12 following increases in the
P4.1 Elasticity. The demand for personal computers can be characterized by the following point elasticities: price elasticity = —5, cross-price elasticity with software = —4, and income elasticity = 2.5.Indicate whether each of the following statements is true or false, and explain your
ST4.1 Individual Demand Curve. Alex P. Keaton is an ardent baseball fan. The following table shows the relation between the number of games he attends per month during the season and the total utility he derives from baseball game consumption:
Q4.10 In the USA, high-wage workers shun public transit and drive cars to work. These same high-income individuals often support massive subsidies for public transit. Use the concept of revealed preference to explain the public demand for transportation. Can you explain this consumer behavior by
Q4.9 Individual consumer demand declines for inferior goods as personal income increases because consumers replace them with more desirable alternatives. Is an inverse relation between demand and national income likely for such products?
Q4.8 An estimated 80 per cent increase in the retail price of cigarettes is necessary to cause a 30 per cent drop in the number of cigarettes sold. Would such a price increase help or hurt tobacco industry profits?What would be the likely effect on industry profits if this price boost was simply
Q4.7 How is a price-consumption curve related to a demand curve?
Q4.6 What would an upward-sloping demand curve imply about the marginal utility derived from consumption? Why aren't upward sloping demand curves observed in the real world?
Q4.5 During the past 40 years the average price of a new single-family home has risen by a factor of ten, making the cost of housing prohibitive for many Americans. Over the same time frame, however, the number of units sold per year has more than doubled. Are these data inconsistent with the idea
Q4.4 Following a price change for Diet Coke, explain how retailers use sales information to learn if Doritos snack chips represent a complement or substitute for Diet Coke.
Q4.3 Prospective car buyers are sometimes confronted by sales representatives who argue that they can offer a vehicle that is 'just as good as a BMW, but at half the price.' Use the indifference concept to explain why the claims of the sales representative are not credible.?
Q4.2 Is an increase in total utility or satisfaction following an increase in income consistent with the law of diminishing marginal utility?
Q4.1 'The utility derived from consumption is intangible and unobservable. Therefore, the utility concept has no practical value.' Discuss this statement.
P3.10 Demand and Supply Curves. The following relations describe monthly demand and supply conditions in the metropolitan area for recyclable aluminum?
P3.9 Demand Curves. The Eastern Shuttle, Inc., is a regional airline providing shuttle service between New York and Washington, DC. An analysis of the monthly demand for service has revealed the following demand relation where Q is quantity measured by the number of passengers per month, P is price
P3.8 Demand and Supply Curves. The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area where Q is quantity measured by the number of items dry-cleaned per month and P is average price in dollars.
P3.7 Supply Curve Determination. Olympia Natural Resources, Inc., and Yakima Lumber, Ltd., supply cut logs (raw lumber) to lumber and paper mills located in the Cascades Mountain region in the state of Washington. Each company has a different marginal cost of production, depending on its own cost
P3.6 Demand Analysis. The demand for housing is often described as being highly cyclical and very sensitive to housing prices and interest rates. Given these characteristics, describe the effect of each of the following in terms of whether it would increase or decrease the quantity demanded or the
P3.5 Supply Function. A review of industry-wide data for the jelly and jam manufacturing industry suggests the following industry supply function Q = - 59 000 000 + 500 000P- 125 000Pt- 500 000P^ +2 0000001/1/where Q is cases supplied per year, P is the wholesale price per case ($), P, is the
P3.4 Demand Function. The Creative Publishing Company (CPC) is a coupon book publisher with markets in several southeastern states. CPC coupon books are sold directly to the public, sold through religious and other charitable organizations, or given away as promotional items. Operating experience
P3.3 Supply Curve Determination. Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a wide variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output information
P3.2 Demand and Supply Curves. Demand and supply conditions in the market for unskilled labor are important concerns to business and government decision-makers. Consider the case of a federally mandated minimum wage set above the equilibrium, or market clearing, wage level. Some of the following
P3.1 Market Equilibrium. Eye-de-ho Potatoes is a product of the Coeur d'Alene Growers' Association.Producers in the area are able to switch back and forth between potato and wheat production, depending on market conditions. Similarly, consumers tend to regard potatoes and wheat (bread and bakery
Q3.10 Suppose the personal income tax was replaced with a national sales tax. How would this affect aggregate supply, aggregate demand, and interest rates?
Q3.9 Contrast the supply and demand conditions for new PhDs in economics and accounting. Why do such large differences in starting salaries seem to persist over time?
Q3.8 'Dynamic rather than static demand and supply conditions are typically observed in real-world markets. Therefore, comparative statics analysis has only limited value.' Discuss this statement.
Q3.7 Distinguish between a supply function and a supply curve. What is the difference between a change in the quantity supplied and a shift in the supply curve?
Q3.6 The USA is a big exporter of animal feeds, corn, meat, fruits, vegetables, and other agricultural commodities. Explain how foreign trade affects the domestic supply ofsuch products.
Q3.5 What key ingredients are necessary for the creation of economic supply?
Q3.4 The Energy Department estimates that domestic demand for natural gas will grow by more than 40 per cent between now and 2025. Distinguish between a demand function and a demand curve.What is the difference between a change in the quantity demanded and a shift in the demand curve?
Q3.3 The Ford Escape Hybrid is the first gas-electric hybrid SUV produced and sold in North America. How would Ford estimate the demand influence of growing environmental awareness by consumers?
Q3.2 Memory chip maker Micron Technology, Inc., enjoys strong demand for its products from manufacturers of computers and intelligent electronics.Describe the difference between direct demand and derived demand.
Q3.1 What key ingredients are necessary for the creation of economic demand?
P2.10 Average Cost Minimization. Giant Screen TV, Inc., is a Miami-based importer and distributor of 60-inch screen HDTVs for residential and commercial customers. Revenue and cost relations are as follows?A. Set up a table or spreadsheet for NPI's order quantity (Q), inventory-related total cost
P2.9 Graphic Analysis A. Given the output (Q) and price (P) data in the following table, calculate total revenue (TR)and marginal revenue (MR):
P2.8 Price and Total Revenue. The Portland Sea Dogs, the AA affiliate of the Boston Red Sox major league baseball team, have enjoyed a surge in popularity. During a recent home stand, suppose the club offered $5 off the $12 regular price of reserved seats, and sales spurted from 3200 to 5200
P2.7 A. Fill in the missing data for price (P), total revenue (PR), marginal revenue (MR), total cost(TC), marginal cost (MC), profit (tt), and marginal profit (Mtt) in the following table:
P2.6 Profit Maximization: Equations. 21st Century Insurance offers mail-order automobile insurance to preferred-risk drivers in the Los Angeles area. The company is the lowcost provider of insurance in this market but doesn't believe its annual premium of $1500 can be raised for competitive
P2.5 Marginal Analysis. Characterize each of the following statements as true or false, and explain your answer.A. If marginal revenue is less than average revenue, the demand curve will be downward sloping.B. Profits will be maximized when total revenue equals total cost.C. Given a
P2.4 Not-for-Profit Analysis. The Denver Athlete's Club (DAG) is a private, not-for-profit athletic club located in Denver, Colorado. DAC currently has 3500 members but is planning on a membership drive to increase this number significantly. An important issue facing John Blutarsky, DAC's
P2.3 Marginal Analysis: Tables. Meredith Grey is a regional sales representative for Dental Laboratories, Inc., a company that sells alloys created from gold, silver, platinum, and other precious metals to several dental laboratories in Washington, Oregon and Idaho. Grey's goal is?
P2.2 Incremental Analysis. Founded in 1985, Starbucks Corporation offers brewed coffees, espresso beverages, cold blended beverages, various complementary food items, and related products at over 12000 retail outlets in the USA, Canada, the UK, Thailand, Australia, Germany, China, Singapore, Puerto
P2.1 Marginal Analysis: Tables. Climate Control Devices, Inc., estimates that sales of defective thermostats cost the firm $50 each for replacement or repair. Boone Carlyle, an independent engineering consultant, has recommended hiring quality control inspectors so that defective thermostats can be
Q2.9 'It is often impossible to obtain precise information about the pattern of future revenues, costs and interest rates. Therefore, the process of economic optimization is futile.' Discuss this statement.Q2.10 In estimating regulatory benefits, the Environmental Protection Agency (EPA) and other
Q2.8 Economists have long argued that if you want to tax away excess profits without affecting allocative efficiency, you should use a lump-sum tax instead of an excise or sales tax. Use the concepts developed in the chapter to support this position.
Q2.7 McDonald's restaurants do the bulk of their business at lunchtime, but have found that promotionally priced meals at breakfast and dinner make a significant profit contribution. Does the success of McDonald's restaurants in this regard reflect an effective application of the marginal profit

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