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managerial economics
Managerial Economics And Organizational Architecture 7th International Edition Clifford W. Smith, Jerold Zimmerman, James Brickley - Solutions
Explain why the cost of capital can only be accurately estimated when the IO schedule is known.
Explain why the NPV criterion is preferable to the IRR criterion.
Explain the role of simulation in capital budgeting.
Define and explain the following terms:a. Beta coefficientb. Stand-alone risk; within-firm risk; market riskc. Ex-ante and ex-post measuresd. Decision tree analysise. IRRf. WACC g. SML h. IO schedule.
Would you expect an airline flying a transatlantic route to pursue a broad coverage or a focus strategy? What factors would affect this decision?
Explain why providers of mobile phone services should segment their markets.What criteria are relevant for segmentation in this situation?
How does branding relate to competitive advantage? Why do all firms not brand their goods, if this enables them to raise their price?
Why is it not sufficient for a firm to create value in order for it to have a competitive advantage?
Explain the meaning and significance of the concept of perceived value. How is it related to the strategy of prestige pricing?
Explain how the price elasticity for a product is likely to change during the product life-cycle.
Assuming that there is no external market for the product, how should a firm determine the optimal transfer price for an intermediate product?
Explain the relationship between a product line and joint products.
Explain why it is important for managers to know the principles of price discrimination.
Explain why in ultimatum bargaining games the result is often a fifty–fifty split between the players. Does this contradict the predictions of gametheory?
Explain why it makes a difference in a repeated game if the end of the game can be foreseen.
Explain how you would formulate a strategy for playing the paper–rock–scissors game on a repeated basis.
Explain the relationship between strategic moves, commitment and credibility.
Explain the following terms:a. Dominant strategyb. Nash equilibriumc. Most favoured customer claused. Mixed strategies.
Explain the differences between the Cournot and Bertrand models of competition; why are these models not true models of interdependent behaviour?
Explain what is meant by the kinked demand curve. What shortcomings does this approach have in the analysis of oligopoly?
Explain why OPEC has been one of the most successful cartels in recent decades. What factors have limited this success?
What is meant by monopoly power? What factors determine the extent of this power?
Explain the meaning and significance of limited intersecting oligopolies.
In what ways may perfect competition not be ‘perfect’?
Why is perfect competition normally regarded as being ‘better’ thanmonopoly?
per cent, is the firm (or individual) learning faster or slower?
per cent learning rate mean? If the learning rate is
What does an
What would it mean if cumulative average cost were increasing over time?
If a polynomial cost function is used for short-run analysis, how should one determine what degree of polynomial to use?
Explain the relative advantages and disadvantages of using a polynomial cost function compared with a power function for a long-run analysis.
Explain the relative advantages and disadvantages of time-series and crosssection studies for estimating cost functions in the long run.
Explain the relative advantages and disadvantages of time-series and crosssection studies for estimating cost functions in the short run.
Explain why it is important to distinguish between economies of scale and the learning curve if they both cause unit costs to decrease.
Explain how a firm might gain economies of scope without gaining economies of scale.
Explain how the linearity assumption in CVP analysis compares with conventional economic theory.
Explain whether the following statements are true or false:a. In the long run a firm might choose to operate a larger plant at less than maximum efficiency rather than a smaller plant at maximum efficiency.b. Maximum efficiency is achieved when AVC and MC are equal.c. An improvement in technology
Explain the relationship between a firm’s short-run production function and its short-run cost function.
Explain the difference between the explicit cost of buying a textbook on economics and the opportunity cost, stating any assumptions. How are these costs relevant for the decision to buy the book?
Figure 5.10 shows an isoquant and an isocost curve.Show the effects of the following changes:a. The price of L rises.b. The prices of L and K rise by the same proportion.c. The firm’s budget increases.d. Improved technology makes K more productive.e. Improved technology makes both L and K more
Explain the shapes of the total product, marginal product and average product curves for a Cobb–Douglas production function in the short run.
What is meant by the three stages of production in the short run?
Explain the difference between technical and economic efficiency.
Give examples of daily activities where the law of diminishing returns applies.
Explain how you would perform an empirical study to investigate the factors affecting house prices in Kensington, London, using the www.findaproperty.com site.
Explain why lagged variables are useful in analysis.
What is meant by the price–quality relationship? What are its implications?
Explain the difference between demand estimation and demand forecasting.
Explain the importance of correct model specification.
Explain the nature of dummy variables and their use in regression analysis.
Explain the nature of the identification problem, and how it relates to demand relationships.
Explain the advantages of using multiple regression compared with simple regression.
Referring to Table 3.6 for income elasticities, repeat the procedure in the previous question.
Referring to Table 3.4 showing empirical estimates of price elasticities, draw some general conclusions relating to the products involved. Identify any apparent anomalies in the table and give some possible explanations.
Select a company from the FT.com website and analyse the factors affecting its demand according to the categories described in this chapter.
Analyse the effects on the demand for cars of the following:a. A higher tax on gasolineb. A tax on car parkingc. Increased automation on subwaysd. Government legislation for increased safety in cars, like side impact protectione. A ‘congestion’ tax imposed on cars using certain routes at
Explain the significance for economic theory of the relationship between price and perceived quality.
Explain the problems for government policy if it tries to use supply-oriented policies rather than demand-oriented ones in trying to discourage the consumption of certain products.
Explain the role of empirical studies in terms of the theory of the firm.
Discuss the reasons for satisficing behaviour by firms.
Explain what is meant by the various forms of the EMH; what are the main criticisms of the EMH?
Explain how managers can take advantage of the problems in measuring profit.
Explain the implications of the agency problem for the theory of the firm.
Explain the implications of risk and uncertainty for the theory of the firm.
Explain the differences between profit maximization and shareholderwealth maximization. Which assumption provides a better model of a firm’s behaviour?
Explain why the concept of the ownership of a public corporation is a complex issue.
Why when we study economics do we tend not to learn good theories to start with?
Explain, using examples, why it is important for managers to have good theories.
What is meant by a ‘good’ theory?
Explain, using the car import quota case, how different and conflicting theories can arise.
Give some examples of transactions that are not normally considered as business transactions.
What is meant by the decision-making process?
Why is the subject of managerial economics relevant to the problem of global warming?
15–19. Toledo Chicken is a large chicken processor that raises, processes, and packs both fresh and frozen chicken parts. The firm has five plants located around the United States. Factory employees have been paid a fixed salary, but recently Toledo switched to a piece-rate pay system. What
15–18. Consider two successful sales companies. One company pays its salespeople a high commission, whereas the other pays its salespeople a straight salary. Assume that both companies are paying their salespeople in an optimal manner. Explain potential differences in the firms that might help to
15–17. How does the concept of a risk premium in incentive compensation relate to the concept of a compensating differential in compensation policy?
15–16. Prior to 2004, American accounting rules did not require firms to expense stock options on their accounting statements. Thus, firms were able to grant executive stock options without impacting “bottom-line performance.” Correspondingly, some people argued that the primary reason firms
15–15. Top executives of European firms are typically paid substantially less than the top executives of American firms. They are also paid differently. For example, stock options are much more common among American than European executives. Do these differences imply (1) that American executives
15–14. Susan Jones is a salesperson at Radex Co. Her utility function can be represented by U = C2, where C is her compensation.a. The company is considering paying her a sales commission rather than a straight salary.The sales manager, however, is concerned that he will have to pay her a
15–13. Two successful firms are observed with quite different compensation plans for their salespeople. One firm pays its salespeople on a commission basis, whereas the other firm pays its salespeople fixed salaries. Do you think that one of the two companies is making a mistake? Explain.
15–12. In one year, Philip Morris Company ratified a new labor pact that gave employees stock in lieu of pay increases. The agreement covered 7,800 employees, with each employee being given 94 shares (1994 value of about $60 per share). Employees cannot sell the stock for at least a year and
15–11. There has been an increased emphasis on compensating employees through incentive pay.High incentive pay, however, is not likely to be productive in all settings. Discuss the factors that are likely to favor paying high incentive pay to employees.
15–10. The Roman Empire taxed many faraway provinces. Rome would auction the rights to tax collection to the highest bidder. The winning bidder was given the right to set the tax rate for the province and the right to collect (and keep) the taxes. In turn, the winner would pay the bid amount to
15–9. Mrs. Fields’ Cookie Company is a very successful company out of Salt Lake City, Utah.The company sells freshly baked cookies to customers in shopping malls. The company has expanded and opened outlets in other cities such as San Francisco. Debbie Fields has been on the cover of several
15–8. Evaluate the following statement: “John is paid a straight salary with no bonus pay. Obviously, he has no incentives to do a good job.”
15–7. Some school districts have compensated teachers based on the performance of students on standardized tests. Do you think this is a good idea? Explain.
15–6. Evaluate the statement: “Profit-sharing plans are good; they encourage teamwork.”
15–5. Some companies reward salespeople based on their performance relative to other salespeople in the company. Why would a company want to do this?
15–4. Discuss trade-offs between efficient risk bearing and incentives in compensation plans.
15–3. Explain why an investor is usually better off if she holds a diversified portfolio rather than investing all her resources in the stock of one company.
15–2. Two employees are assigned to work overseas for a two-year period. One person sells his house in the United States, whereas the other leases it for two years to another family. Which house do you think will be in better condition after the two years?Explain.
15–1. Evaluate the statement: “Investment banking is a demanding profession; investment banks want their employees to work as hard as possible.”
5. Are there any reasons why overpaying CEOs might be in the shareholders’ interest (i.e., maximize shareholder value)?
4. Does the observation that the stock price increases when firms increase incentive pay for CEOs suggest that most CEOs do not receive enough incentive compensation? Explain.
3. Is it obvious that $10 per thousand is too low of an incentive pay for CEOs? Explain.
2. Japanese CEOs generally receive much lower levels of compensation than CEOs in the United States. Does this imply that U.S. CEOs are overpaid?
1. Do you think the fact that most American CEOs are paid so much more than rank-and-file employees suggests CEOs are overpaid?Explain.
2. Discuss other ways that Bobby Jones might motivate increased effort at the units?
1. Critically evaluate the proposed stock plan.
10. Discuss the controversy surrounding incentive pay.
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