Managerial Economics And Organizational Architecture 7th International Edition Clifford W. Smith, Jerold Zimmerman, James Brickley - Solutions

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9-3. MBA Economics Professor Why do MBA economics professors earn more than regular economics professors?
9-2. Entry and Elasticity Suppose that new entry decreased your demand elasticity from 2 to 3 (made demand more elastic). By how much should you adjust your price of $10?
9-1. Faculty Housing Benefits At a university faculty meeting in 2000, a proposal was made to increase the housing benefits for new faculty to keep pace with the high cost of housing. What will be the likely effect of this proposal? (Hint: Think indifference principle.)
5. Which of the following is critical for a firm adopting a cost reduction strategy?a. The firm must be the first to adopt the cost reduction strategy.b. The strategy reduces costs by at least 10%.c. The strategy is focused on reducing internal production costs.d. The methods of achieving cost
4. A firm in a perfectly competitive market (a price taker) faces what type of demand curve?a. Unit elasticb. Perfectly inelasticc. Perfectly elasticd. None of the above
3. If a firm successfully adopts a product differentiation strategy, what should happen to the elasticity of demand for its product?a. Increasesb. Decreasesc. Becomes unit elasticd. Is unaffected
2. Which of the following types of firms are guaranteed to make positive economic profit?a. Both a perfectly competitive firm and a monopolyb. Neither a perfectly competitive firm nor a monopolyc. A perfectly competitive firm but not a monopolyd. A monopoly but not a perfectly competitive firm
1. Which of the following types of firms would face a downward-sloping demand curve?a. Both a perfectly competitive firm and a monopolyb. Neither a perfectly competitive firm nor a monopolyc. A perfectly competitive firm but not a monopolyd. A monopoly but not a perfectly competitive firm
G8-1. Supply and Demand Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in costs, entry/exit of firms, a change in consumer tastes, a change in the macroeconomy, a change in interest rates, or a change in
8-5. Valentine’s Day On Valentine’s Day, the price of roses increases by more than the price of greeting cards.Why? (Hint: Consider what makes roses and cards different and how that difference might affect supply’s responsiveness to price.)
8-4. Demand Shifts Indicate whether the following changes would cause a shift in the demand curve for Product A and, if so, the direction of the shift. Change Increase in price of complementary product Demand Curve Shift? Direction of Shift? Yes No Increase Decrease N/A Increase in the price of the
8-3. Candy Bars Marketa. In the accompanying diagram (which represents the market for chocolate candy bars), the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if there is an increase in cocoa prices.b. In the same diagram, the initial equilibrium is at the
8-2. Demand and Supply of Syndicated Bank Loans In 1998, the Syndicated Bank Loan market (defined as loans having more than two bank lenders) was a vast and cheap source of debt financing for U.S. corporations. This market was characterized by a large number of financial institutions that
8-1. Widget Market The widget market is competitive and includes no transaction costs. Five suppliers are willing to sell one widget at the following prices: $30, $29, $20, $16, and $12. Five buyers are willing to buy one widget at the following prices: $10, $12, $20, $24, and $29. What is the
5. Now suppose that competition among several market makers forces the spread down to $2. How many goods are traded?a. Fiveb. Fourc. Threed. Two
4. Suppose there is a single market maker in this market. What is the optimal bid–ask spread?a. $2 bid; $10 askb. $4 bid; $8 askc. $5 bid; $7 askd. $6 bid; $6 ask
3. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded?a. Fiveb. Fourc. Threed. Two
2. Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming no transactions costs and a competitive market, what is the equilibrium price in this market?a. $5b. $6c. $7d. $8
1. If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?a. Both equilibrium price and the equilibrium quantity could rise or fall.b. Equilibrium price would rise, and the equilibrium quantity could rise
22–4. Eastman Kodak charged that the Fuji Corporation of Japan was illegally dumping film in U.S. markets. It asked the U.S. government to investigate and impose sanctions on Fuji for its unfair practices. But the world film market is dominated by Kodak and Fuji. If the government agrees to
22–3. The Body Shop started its business by developing an extensive network of franchisees.Recently, franchisees have complained about the company’s competing with their franchises through direct catalog sales and over the Internet. How does an expansion of Internet and direct catalog selling
22–2. The Body Shop has been widely noted for its ethical stands in its business: natural cosmetics, “Products for People Tested by People,” and First World wages for Third World products. Recently, Jon Entine published an analysis of The Body Shop in Business Ethics, alleging false
22–1. Ben and Jerry’s Homemade Inc. has received much favorable press for its Rainforest Crunch ice cream. It uses official rain forest nuts and berries and all natural ingredients; it also sends a percentage of profits to charities. However, another flavor, Cherry Garcia, contains sulfur
6. Despite the above indications of a strong ethical culture within the company, a number of civil and criminal actions have been instituted against J&J. In November 2013, a massive$2.2 billion settlement was made to resolve claims resulting from the promotion of unapproved or off-label uses for
5. Suppose the packaging redesign and retooling required a longer time period, extensive cost, and that all Tylenol products were affected—not just capsules. Might McNeil managers have taken a different set of actions and how might the credo have guided these decisions?
4. Discuss the advantages and disadvantages of listing shareholders as fourth priority in J&J’s credo, especially in light of the Tylenol tragedy?
3. Analyze the decision not to raise Tylenol prices.
2. Most discussions of J&J’s handling of this tragedy have been laudatory, yet J&J’s stock price fell by more than $7. Does this mean that the stock market thinks J&J’s managers reacted poorly?
1. Explain how the credo helped guide the managers in the McNeil division.
Should we tow our obsolete North Sea oil rig to deep water and sink it?
Should we pay “fees” to expedite paperwork for export permits to an African market?
Should we adopt different procedures for handling and disposing of hazardous wastes in Latin American plants than we use in the United States?
Should we do business with a company that employs child labor in its Asian textile factory?
Should we market infant formula in Central Africa?
Should we use laboratory animals for product testing?
2. The largest contributor to the environmental group happened to own Southtown Mall, an older strip mall across the road from the proposed new mall. Was his contribution to the environmental group ethical?
1. Was this development ethical?
7. Discuss how the adoption of a code of ethics can increase firm value.
6. Understand how market mechanisms like repeat sales, warranties, third-party monitors, disclosure, and ownership structure can encourage ethical behavior.
5. Describe how obtaining a diversity of input, legal standards, and business norms help shape corporate policy choices.
4. Understand how economists view social responsibility.
3. Explain how monopolies and externalities provide a role for regulation—in these cases, private contracts and markets may lead to resource misallocation.
2. Explain how, although it is over 2,500 years old, there is no universally accepted consensus as to which behaviors are ethical.
1. Describe how corporate ethics and organizational architecture are linked.
21–10. Passing through Louisiana you notice billboards proclaiming “Louisiana’s shame—the only state that does not license chiropractors.” Who do you expect finances these billboards?If licensing were adopted, who would be affected and how?
21–9. Dubliners often complain that there are too few pubs in their city. At night pubs can be quite crowded and prospective customers often are turned away. Some Dubliners blame this pub “shortage” on the English who originally enacted laws restricting pubs centuries ago when they ruled
21–8. Various politicians have proposed an Internet tax. One proposal would be to tax both outgoing e-mail and every Web page downloaded. What groups are likely to support such a tax and what groups would oppose it?
21–7. What are the benefits of government regulation of air pollution from automobiles? What are the costs of this regulation?
21–6. What are the benefits and costs of government regulation of air quality within cotton mills—for instance, specifying maximum levels of cotton dust (prolonged exposure leads to “white lung” disease)?
21–5. What would be the impact of raising the federal minimum wage?
21–4. In 1997 Canadian 2 × 4 lumber studs with two holes drilled in them (so that electricians could run wires) were categorized by customs agents as Category #4418 and free of any tariffs. If they had been categorized as #4407, they would have fallen under a quota system whereby only the first
21–3. At a city council meeting, the Taxi Cab Owners Association argued for a fare increase.They note that the market price to buy or rent taxi medallions has been rising, and with these higher costs, profitability is reduced. Evaluate this argument.
21–2. Adam Smith often is quoted as saying, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.” If Smith is right, does this justify a role for government?
21–1. “When I bought this land, it was zoned only for farming. But the longer I live here, the more I resent the wealth transfer I’m paying to other landowners without such restrictions.” Comment.
2. Which pieces of legislation do you expect WM’s local labor unions to oppose or support?
1. For each piece of proposed legislation, should WM support or oppose it?
5. Discuss business participation in the political process.
4. Explain how regulation can be used to promote market power by restricting entry by potential competitors.
3. Illustrate a basic explanation of the economic theory of regulation and the market for regulation.
2. Describe the role of government intervention in the marketplace in defining and enforcing property rights, in dealing with potential market failures, and in the redistribution of wealth.
1. Discuss the importance of the regulatory environment to corporate managers.
7. Explain how symbols can be used to shape employee expectations of appropriate behavior?
6. Define organizational power; give specific examples
5. Explain how a manager can market a business plan within the firm.
4. Discuss the trade-offs associated with maintaining flexibility in the proposal stage versus the implementation stage of a business plan.
3. Describe how changing the firm’s organizational architecture can help motivate changes within the firm.
2. Discuss the obstacles to having business plans adopted and implemented.
1. Define leadership and list two important characteristics of good leadership.
19–14. Koji Incorporated produces high-end cameras. Its typical camera comes with an array of options. The company has a good brand name.a. Koji distributes its cameras through independent dealers who are given exclusive distribution rights for their respective market areas. Discuss why it might
19–13. The Hanson Clinic is a well-regarded medical center located in a semirural area in the Midwest. One of its specialty areas is treating rare forms of cancer. To support this activity, Hanson wants to construct a new lab. The lab will require very specialized equipment, a specially designed
19–12. The Boswell Medical Center is the only hospital in a rural community. It requires significant janitorial services to clean its buildings and equipment. It also requires a relatively large lab for conducting tests of various types (e.g., MRIs, blood tests, and ultrasound tests). Do you
19–11. You are at a cocktail party, where you meet the CEO of a pharmaceutical company who has been thinking recently about her overseas distributors who have exclusive sales territories. She can’t quite figure out what is troubling her, but she is dissatisfied with these distributors. You
19–10. Most of the McDonald’s restaurants in the Rochester area are owned by one individual.Discuss why this ownership pattern makes economic sense.
19–8. Jimmy’s Stereo Company manufactures stereo equipment. Its business strategy is to provide retail customers with high-quality equipment, along with good service and warranty protection. It currently distributes its products through licensed dealers who have exclusive territories. Discuss
19–7. Advanced Interconnect Manufacturing Inc. (AIM) is an independent company. It was previously owned by one of its major customers before being purchased by five managers(with the help of outside investors). AIM assembles wire harnesses for use in machines such as copiers and x-ray machines.
19–6. The Hidden Fence Company sells invisible electric fences to contain dogs within yards.For a half-acre lot, the cost is $2,000 for the system and installation. The market for invisible dog fencing is competitive: Several companies sell similar products at about the same price. In each case,
19–5. Cable television companies lay cables to individual households in the communities they serve to carry the television signal. How specific is this investment? What kind of arrangements would you expect the cable companies to make with local communities about the pricing and taxation of cable
19–4. In explaining the recent acquisition of a supplier, an executive made the following argument: “We purchased the supplier so that we could keep the profit rather than pay it to some other firm.” Evaluate this argument.
19–3. Evaluate the following quote:The major advantage to outsourcing is that it reduces a company’s capital costs, freeing the company to use scarce capital for other purposes.
19–2. The Black Diamond Company mines coal. It would like to build a processing plant right next to its major mine. The location of this mine is relatively remote and is not near other coal mines. Tax considerations, as well as government regulations, dictate that the processing plant be owned
19–1. Discuss the pros and cons of the policy described in the following quote from Fortune27:According to the new thinking, any kind of work to which a company can’t bring a special set of skills should be spun off, outsourced or eliminated. Thus AT&T, GE, IBM, and Shell Oil are in the process
6. What are the costs and benefits of having AutoCorp construct the plant and letting Amalgamated Fabric operate it on a contractual basis?
5. What are the costs and benefits of AutoCorp vertically integrating and supplying its own automobile seats?
4. What factors might make it difficult to write a contract that would limit opportunistic behavior by both companies?
3. Does AutoCorp have to worry about any opportunistic actions by Amalgamated Fabric?
2. What factors would you consider to decide whether opportunistic behavior by AutoCorp is a likely possibility?
1. One concern you have is that AutoCorp might try to lower the effective purchase price of the seats after the plant is built (by reneging on the contract or demanding higher-quality seats for the same price). Once the plant is built, how much can the purchase price fall before Amalgamated Fabric
4. Typically the stations served (and owned) by distributors are located in rural areas, whereas the direct-serve stations are located in urban areas. Give two economic reasons to explain why you might expect such a pattern.
3. Some direct-serve gasoline stations provide repair services, and others concentrate almost exclusively on self-service gasoline sales. Which type of station is more likely owned by the central oil company and which type is more likely to be franchised? Explain.
2. Suppose the courts ruled that the oil companies must allow the dealers to buy gas from distributors. What effects do you think such a ruling would have on the operational policies of the oil companies?
1. Oil companies do not allow dealers (franchisees) to buy gas from distributors. Dealers must buy gas from the central oil company. Dealers often complain that this is unfair. The practice has been the subject of antitrust lawsuits. Oil company executives argue that this policy is important
2. Discuss how vertical integration might be used to accomplish this pricing policy. Be sure to indicate the market into which BioChem should vertically integrate (assume they can integrate only into one). Explain why you chose this market.
1. Calculate the optimal prices that BioChem would like to charge in each market segment to maximize profits.
What has motivated the trend in increased outsourcing over the past few decades, and why have some major companies recently brought various functions back to the United States?
When a company outsources, what are the determinants of the specific contract provisions? Why might a company negotiate a 10-year contract instead of a 1-year contract? Why do some firms grant distributors exclusive rights to particular territories?
What activities are most likely to be outsourced? Why are functions such as manufacturing, data processing, catering, copying, and trucking among the more frequently outsourced services? Why does Apple maintain ownership of assets that are used on site by some of its outsourcing partners?
What are the costs and benefits in choosing between the alternative architectures that are implied by within-firm production versus outsourcing?
9. Describe the underlying factors that have motivated the observed trends in outsourcing over the past few decades
8. Explain the double-markup problem and how various contract provisions can be used to address it.
7. Discuss how free-rider problems can arise when contracting with multiple independent distributors and how various contract provisions can be used to reduce these problems.

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