Managerial Economics A Strategic Approach 2nd Edition Robert Waschik ,Tim Fisher ,David Prentice - Solutions

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Q2.6 Intel Corp. designs, develops, manufactures and sells integrated circuit solutions for wireless data and personal computer (PC) applications. The company is expanding rapidly to achieve hoped-for reductions in average costs as output expands. Does the point of minimum long-run average costs
Q2.5 Southwest Airlines is known for offering cutrate promotional fares to build customer awareness, increase market share and boost revenues in new markets. Would you expect total revenue to be maximized at an output level that is typically greater than or less than the short-run profit-maximizing
Q2.4 If a baseball player hits 0.285 during a given season, the player's lifetime batting average of 0.278 will rise. Use this observation to explain why the marginal cost curve always intersects the related average cost curve at either a maximum or a minimum point.
Q2.3 For those 50 or older, membership in AARP, formerly known as the American Association of Retired Persons, brings numerous discounts for health insurance, hotels, auto rentals, shopping, travel planning and so on. Use the marginal profit concept to explain why vendors seek out bargain-priced
Q2.2 'The personal computer is a calculating device and a communicating device. Spreadsheets incorporate the best of both characteristics by allowing managers to determine and communicate the optimal course of action.' Discuss this statement and explain why computer spreadsheets are a popular means
Q2.1 In 2007, Chrysler Group said it would cut 13000 jobs, close a major assembly plant and reduce production at other plants as part of a restructuring effort designed to restore profitability at the auto maker by 2008. Its German parent, DaimlerChrysler, said it is looking into further strategic
Q1.10 Is it reasonable to expect firms to take actions that are in the public interest but are detrimental to stockholders? Is regulation always necessary and appropriate to induce firms to act in the public interest?A. One of the most important skills to learn in managerial economics is the
Q1.9 'In the long run, a profit-maximizing firm would never knowingly market unsafe products.However, in the short run, unsafe products can do a lot of damage.' Discuss this statement.
Q1.8 Why is the concept of enlightened self-interest important in economics?
Q1.7 Some argue that prescription drug manufacturers, like Pfizer, gouge consumers with high prices and make excessive profits. Others contend that high profits are necessary to give leading pharmaceutical companies the incentive to conduct risky research and development. What factors should be
Q1.6 Which concept-the business profit concept or the economic profit concept- provides the more appropriate basis for evaluating business operations? Why?
Q1.5 How is the popular notion of business profit different from the economic profit concept? What role does the idea of normal profits play in this difference?
Q1.4 In the wake of corporate scandals at Enron, Tyco, and WorldCom, some argue that managers of large, publicly owned firms sometimes make decisions to maximize their own welfare as opposed to that of stockholders. Does such behavior create problems in using value maximization as a basis for
Q1.3 Describe the effects of each of the following managerial decisions or economic influences on the value of the firm:A. The firm is required to install new equipment to reduce air pollution.B. Through heavy expenditures on advertising, the firm's marketing department increases sales
Q1.2 Explain how the valuation model given in Equation (1.2) could be used to describe the integrated nature of managerial decision-making across the functional areas of business.
Q1.1 Is it appropriate to view firms primarily as economic entities?
Recognize the relation between the firm and society and the role of business as a tool for social betterment.
Acquire a framework for understanding the nature of the firm as an integrated whole as opposed to a loosely connected set of functional departments.
Develop a clear understanding of the economic method in managerial decisionmaking.
Stick by your principles. Principles are not for sale at any price.
Leave something on the table. Profit with your customer, not offyour customer.
Accept responsibility for your mistakes, and fix them. Be quick to share credit for success.
Do the rightthing. A handshake with an honorable person is worth more than a ton of legal documents from a corrupt individual.
Above all else, keep your word. Say what you mean, and mean what you say.
A water expert was asked whether increased water consumption in a California community was lowering its water table. To answer this question, he estimated a linear regression equation of the form W = a + bt, where W height of the water table and t time measured from the start of the study period.
The following regression was estimated for 23 quarters between 2000 and 2004 to test the hypothesis that tire sales (T) depend on new- automobile sales (A) and total miles driven (M). Standard errors are listed in parentheses. % AT 45 +1.41 ( % AM) + 1.12 (%AA) (.32) (.19) (.41) Here N = 23,
A 1984 study of cigarette demand resulted in the following logarithmic regression equation: log(Q) -2.55-29 log(P) .09 log(Y)+.08 log(A) (-2.07) (-1.05) (4.48) .1W. (-5.2) Here Q denotes annual cigarette consumption, P is the average price of cigarettes, Y is per capita income, A is total spending
To what extent do you agree with the following statements?a. The best test of the performance of two different regression equations is their respective values of R-squared.b. Time-series regressions should be run using as many years of data as possible; more data means more reliable coefficient
A financial analyst seeks to determine the relationship between the return on PepsiCo's common stock and the return on the stock market as a whole. She has collected data on the monthly returns of PepsiCo's stock and the monthly returns of the Standard & Poor's (S & P) stock index for the last five
Coca-Cola Company introduced New Coke largely because of Pepsi's success in taste tests head-to-head with Coke Classic.a. Consider the following hypothetical information: (1) In blind taste tests, 58 percent of subjects preferred Pepsi to Coke Classic; (2) in similar tests, 58 percent of subjects
a. Consider a different consumer who has much steeper indifference curves than those depicted in Figure 3A.1. Draw a graph showing such curves. What do these curves imply about his relative valuation for good X versus good Y?b. Using the curves from part a and the budget line in Equation 3A.1,
A private-garage owner has identified two distinct market segments: short-term parkers and all-day parkers with respective demand curves of Ps 3 (Qs/200) and Pc 2-(Q/200). Here P is the average hourly rate and Q is the number of cars parked at this price. The garage owner is considering charging
Over the last decade, Apple Computer has seen its global share of the personal computer market fall from above 10 percent to less than 5 percent. Despite a keenly loyal customer base, Apple has found it more and more difficult to compete in a market dominated by the majority standard: PCs with
A firm's total profit is given by 20x - x + 16y-2y.a. What values of x and y will maximize the firm's profit?b. Repeat part a assuming the firm faces the constraint x + y 8.c. Repeat part a assuming the constraint is x+5y=7.5. 1.During a five-year period, the ticket sales of a city's professional
In the late 1970s, the economist Arthur Laffer argued that lower tax rates, by stimulating employment and investment, could lead to increased tax revenue to the government. If this prediction is correct, a tax rate reduction would be a win-win policy, good for both taxpayers and the government.
b. Derive an expression for marginal profit. Compute marginal profit at Q=2, 8, and 14.Confirm that profit is maximized at Q-8. (Why is profit not maximized at Q-2?)
Suppose a firm assesses its profit function as -10 48Q+15Q - Qa. Compute the firm's profit for the following levels of output: Q = 2,8, and
Suppose the microchip producer discussed in this chapter faces demand and cost equations given by Q 8.5-.05P and C 100+ 38Q Choosing to treat price as its main decision variable, the microchip producer writes profit as T-R-C [P(8.5 .05P)]-[100+(38)(8.5 .05P)] =-423 +10.4P-.05P2 Derive an expression
Modifying a product to increase its "value added" can benefit customers and enhance supplier profits. For example, suppose an improved version of a product increases customer value added by $25 per unit. (In effect, the demand curve undergoes a parallel upward shift of $25.)a. If the redesign is
The college and graduate-school textbook market is one of the most profitable segments for book publishers. A best-selling accounting text published by Old School Inc. (OS) has a demand curve P-150-Q where Q denotes yearly sales (in thousands) of books. (In other words, Q-20 means 20 thousand
A television station is considering the sale of promotional videos. It can have the videos produced by one of two suppliers. Supplier A will charge the station a setup fee of $1,200 plus $2 for each cassette; supplier B has no setup fee and will charge $4 per cassette. The station estimates its
Suppose a firm's inverse demand curve is given by P 120 - 50 and its cost equation is C 420 + 60Q + Qa. Find the firm's optimal quantity, price, and profit (1) by using the profit and marginal profit equations and (2) by setting MR equal to MC. Also provide a graph of MR and MC.b. Suppose instead
Consider a firm that is in the business of treating hazardous waste. What kinds of economic constraints limit the scope of the firm's actions? What about technological constraints? Legal or regulatory constraints? Political constraints? Time constraints?
Listed here are several examples of bad, or at least questionable, decisions. Evaluate the decision maker's approach or logic. In which of the six decision steps might the decision maker have gone wrong? How would you respond in the final decision situation?a. Mr. and Mrs. A recently bought a
Management sometimes is described as the art and science of making decisions with too little information. What kinds of additional information would a manager want in the eight examples cited in the chapter?
Suppose there are two separate firms. The upstream firm is the only producer of an input required by the downstream firm and the upstream firm has no other customers. One unit of input at the downstream firm is required to produce one unit of output at the downstream firm. The cost functions for
Suppose there is a firm with two divisions: an upstream division and a downstream division. One unit of output from the upstream or production division is used for each unit of output of the downstream division. The upstream division is the only producer of the input for the downstream division.
Consider a multiproduct firm that has a monopoly in the production of each of two goods. Suppose the demand functions are given by:D1(p1, p2) = 10– 0.2p1+ 0.1p2 D2(p1, p2) = 20+ 0.1p1– 0.3p2 The total cost functions for production of each of the two goods are given by:c1(q1) = q1 c2(q2) =
Consider a multiproduct firm that has a monopoly in the production of each of two goods. Suppose the demand functions are given by:D1(p1, p2) = 100– 2p1– p2 D2(p1, p2) = 200– p1– 4p2 The total cost functions for production of each of the two goods are given by:c1(q1) = 2q1 c2(q2) = 4q2(a)
Consider a multiplant monopoly facing demand given by:q = 4100 – 25p The firm operates two plants with total cost functions given by:(a) State the profit-maximizing rule that determines how much output the monopoly will produce at each plant.(b) Use the profit-maximizing rule to determine the
Consider a multiplant monopoly facing demand given by:q = 480– 4p The firm operates two plants with total cost functions given by:(a) State the profit-maximizing rule that determines how much output the monopoly will produce at each plant.(b) Use the profit-maximizing rule to determine the output
Suppose a country has two firms, each engaged in different industries.Suppose that the marginal cost of pollution reduction (MCR) at one firm is given by:(9.1)where QR is the amount of reduced pollution, and the marginal cost of pollution reduction at the other firm is given by:(9.2)Note that the
A newsprint company has (private) marginal costs given by:MCP= 10+ 0.1 Q Assume that the price of newsprint is determined, in a competitive market, to be $20 per unit. A by-product of the newsprint manufacturing process is sludge, which is dumped into a river. Suppose the costs of the sludgedumping
Let the inverse demand curve for a monopoly firm be:P = 40– 0.001 Q and let the total cost of the firm be:C = 10Q + 0.01Q 2 (a) Calculate the equilibrium price and output level of the monopolist.(b) Determine the average cost curve of the monopoly. Calculate the profit per unit and the total
Let the inverse demand curve for a monopoly firm be:P = 50– 0.01 Q and let the marginal cost curve of the firm be:MC = 10+ 0.02 Q(a) Calculate the equilibrium price and output level of the monopolist.(b) Suppose government regulators decide to use marginal cost pricing to induce the monopolist to
Identify the strategic effect of an incumbent firm’s investment strategy from Section 8.2 when the incumbent:• deters entry• accommodates entry.Discuss the differences between these two versions of the strategic effect of the incumbent’s investment strategy. In each case, whose profits is
Consider the following examples:(a) A maker of ski boots and bindings designs a new ski boot to be used only with its own bindings, with increased safety properties.(b) A clothing outlet sells only last season’s fashions at bargain basement prices.(c) An optometrist installs an in-house facility
and fixed cost F = 100. Solve for the equilibrium market price, each firm’s level of output, and equilibrium profits for both firms, when the incumbent accommodates entry.(b) Now suppose the incumbent deters entry. Solve for market price, and output and profits of each firm. Would the incumbent
In Section 8.1.2, we showed that when the market demand function was given by p =120 – (K1+ K2), the incumbent firm deterred entry by producing the level of output and earned profits 1d, given by:If the incumbent accommodated entry, the incumbent earned profits in the Stackelberg equilibrium
In Section 8.1 we showed that when the incumbent firm 1 accommodated entry, it earned profits:1a= (60 – c/2) · (30 – c/4) – F When this same firm chose capacity to deter entry, it earned profits:1d= 2 F · (120 –c) – 5F The incumbent will deter entry as long as 1d >1a, or as long as
Firm 1 and firm 2 sell a similar but differentiated product, charging market price p1 and p2, respectively. Suppose fixed costs are equal to zero and each firm has the same constant marginal costc, so that in equilibrium, each firm charges the Nash equilibrium price given by:where a (b) is the
Using the information in the previous exercise, suppose that workers at firm 1 go on strike and demand a higher wage. To settle the dispute, managers at firm 1 increase wages paid to workers, so that the marginal cost of production at firm 1, c1 increases.(a) What happens to firm 1’s reaction
Suppose two firms sell products in a particular market, but consumers do not regard the output of each firm as perfectly identical. The two firms face the following demand curves:q1= 30– 4p1+ 2p2 q2= 60+ 2p1– 4p2 Each firm has the same constant marginal cost of production, so that c1=c2= $15.
Can you use the model of product differentiation to explain the fact that all major brewers introduced a type of ice beer within a very short period of each other? Is this an example of maximal or minimal product differentiation?
Refer to Figure 6.3. What would happen if firm 2’s reaction function were steeper than firm 1’s reaction function? Can you relate your answer to stability of the Cournot equilibrium?
Suppose that the market demand function is given by p = a – b(q1+ q2)as in Section 6.1.1. Each firm has zero fixed costs and constant marginal cost of productionc. An increase in demand causes the demand function to shift upward, reflected by an increase in the parameter a to What effect does
Using the same demand and cost functions, suppose that firms competed in prices instead of quantities. Solve for the Bertrand equilibrium, including market demand, market price and profits earned by each firm.Contrast your answers to those in the previous exercises.
Suppose instead that firm 1 was the Stackelberg leader in this market.Rewrite firm 1’s profit function, using firm 2’s reaction function, and solve for the Stackelberg equilibrium. Once you have solved for the equilibrium market price and total market demand, you should be able to tell whether
Consider a market where two firms are competing in quantities. Suppose that the market inverse demand function is given by:p = 750– 15(q1+ q2)Each firm has zero fixed costs and constant marginal cost of production c.(a) Write out each firm’s profit function, and solve for the two first-order
Consider the reaction functions as displayed in Figure 5.4. What happens to each player’s Nash equilibrium strategy if player 1’s reaction function shifts to the right? How does this depend upon whether actions are strategic substitutes or strategic complements?
Repeat Exercise 4 when actions are strategic complements.
Use a diagram with reaction functions as in Figure 5.4 when actions are strategic substitutes. Notice that when firm 1’s strategy s1 is on the horizontal axis, its reaction function R 1is steeper than firm 2’s reaction function R 2. Identify the Nash equilibrium and label it N, and label firm
Consider the following game describing the agency problem between a supervisor and a labourer. Each player has two strategies. The labourer can either work or shirk, and the supervisor can either monitor the labourer or not monitor. If the labourer works, he produces output valued by the supervisor
Suppose there are two firms, A and B, which compete with each other in the market for a unique product. Each firm can charge one of two prices for this product: a high price , or a low price If both firms charge the high price , they split total market profits of 1,000. If they both charge the low
Representatives from the eleven member countries of the Organization of Petroleum Exporting Countries (OPEC) meet regularly to set production limits on the number of barrels of oil per day which each member country can produce.(a) Imagine characterizing the relationship between OPEC members as a
A firm believes there are two types of customers: b and l. The inverse demand equation for a b customer is:pb= 130– 2q The inverse demand equation for an l customer is:pl= 90– 4q The marginal cost of producing their good is 10.(a) The firm offers two quantities qb and ql such that the marginal
or 0 units of output from the monopolist. There are two types of consumers in the market. The table summarizes each consumer’s gross surplus derived from the different varieties produced by the monopolist.See Table Suppose the monopolist cannot distinguish between consumers.(a) If the monopolist
A monopolist produces two versions of the same output. Suppose fixed costs are zero and marginal costs for each version are constant and equal to 0. Any consumer would only ever buy
The cost function for a monopoly is given by C = Q 2+ 10Q. The firm sells its output in two distinct markets with (inverse) demand functions given by:P1= 80– 2.5Q1 P2= 180– 10Q2(a) Assuming that price discrimination between the two markets is possible, determine the profit maximizing amounts
The cost function for a monopoly is given by C = 100+ 8Q. The firm sells its output in two distinct markets between which price discrimination is possible. The (inverse) demand curves in the two markets are given by:P1 = 20– 2Q1 P2= 40– Q2(a) Determine the profit-maximizing amounts sold in each
The cost function for a monopoly is given by C = 5Q. The firm sells its output in two distinct markets with (inverse) demand functions given by:P1= 55– Q1 P2= 35– Q2(a) Under what conditions can the monopolist successfully practice price discrimination in these two markets?(b) Determine the
Suppose there are only two consumers in a remote community and one dentist. The demand for dental services from the ‘low income’ consumer is given by:qP= 10– 2p and the demand for dental services from the ‘high income’ consumer is given by:qR= 10– p Assume that the dentist’s total
Suppose there are 100 consumers in a small town, each with an identical demand curve, given by:q = 10– 2p where q is the amount an individual buys and p is the price they pay.Suppose that a monopoly firm facing this market has a total cost function given by TC = 2Q, where Q is the total output of
Suppose a perfectly competitive industry is made up of 100 firms.Suppose each firm has a cost function given by c = q 2. Suppose also that the inverse demand curve for the industry is given by p = 10– 0.02Q.(a) Determine each firm’s marginal cost curve.(b) Determine the equation for each
Suppose an industry has only one firm with a cost function given by c = 100+ 9q 2. The inverse demand curve for the industry is given by p = 20– q.(a) Determine the profit-maximizing output level for the monopoly.(b) Determine the price the firm will charge, and the profit level at the firm.(c)
Suppose a firm facing inverse demand curve p = 10– 2q has a cost function given by c = 2q 2.(a) Determine the firm’s revenue function.(b) Determine the firm’s profit-maximizing output level.(c) Determine the price the firm will choose to set.(d) Calculate the firm’s cost, revenue and profit
Suppose a firm facing inverse demand curve p = 10– 2q has a cost function given by c = 5+ q.(a) Determine the firm’s revenue (r) function.(b) Determine the firm’s profit-maximizing output level.(c) Determine the price the firm will choose to set.(d) Calculate the firm’s cost, revenue, and
Suppose a firm has a cost function given by c = 2q 2.(a) Is this a short-run or long-run cost function? Explain.(b) Determine the fixed cost (cF) and variable cost (cV) functions.(c) Determine the average fixed cost (AFC ), average variable cost (AVC )and average cost (AC ) functions.(d) Determine
Suppose a firm faces an inverse demand given by p = 10– 2q. Calculate the firm’s revenue (r) function. Plot the revenue function by calculating the points on the function for q = 0, 1, 2, 3, 4. 5 and drawing a smooth line between the points. 3 Suppose a firm has a cost function given by c = 5+
Fill in the five cells of Table 3.1 with examples of your own. That is, give examples of homogeneous products producing industries with many and a few firms, examples of differentiated products producing industries with many and a few firms, and a monopoly industry.
Use Figure 2.1 to identify the various factors affecting the market environment of:(a) Microsoft Corporation(b) Seagate Technology (manufacturer of hard disk drives)(c) Qantas Airlines(d) Your favourite Italian restaurant In each case, which are the most important factors affecting a
In some large companies, managers are given the option of buying stock in their company at a predetermined set price per share.(a) How might this strategy resolve the agency problem between owners and managers?(b) What would happen if a crash in technology shares caused the share price to fall below
Suppose that all internet service providers (ISPs) were required to have a licence issued by the government, for which the government charged a price . If the government made very large, would you expect there to be very many or very few ISPs in the market? Would each individual ISP be large or
The different roles of costs and size in determining market structure as a market declines
The relationship between the number of firms and market size for different types of competition
The nature and implications of exogenous and endogenous sunk costs for market structure as the market size increases
The Bass and network externality models of the growth stage of the cycle
The meaning of the term ‘product life cycle’ and each of its stages
Potential problems with auctions
The Winner’s Curse and strategies used to overcome it

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Managerial Economics A Strategic Approach 2nd Edition Robert Waschik ,Tim Fisher ,David Prentice - Solutions

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