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Managerial Economics 4th Edition Ivan Png - Solutions
How is Figure 11.5 related to a game in strategic form?
In an oligopoly, how does differentiation raise profit?
If advertising expenditures are strategic complements, and your competitor raises advertising, how should you respond?
Explain the meaning of best response function in the context of competition on: (a) price;(b) capacity.
Explain the meaning of residual demand in the context of competition on: (a) price;(b) capacity.
Price will equal marginal cost only in a perfectly competitive industry. True or false?Explain your answer.
How do strategies in repeated strategic situations differ from those that occur only once?
Loan sharks are not allowed to use the legal system to collect debts. Does this explain why they employ violence?
In bargaining, a common tactic is to “walk away.” Is this credible?
Suppose a bank offers deposit insurance to its depositors, with the compensation to be paid from its own funds.Why is this not credible?
Why are conditional strategic moves better than unconditional strategic moves?
In the Battle of the Bismarck Sea (Table 10.2), does the first mover have an advantage?Why or why not?
In a game in extensive form, what is wrong with planning by reasoning forward from the initial node?
In a game in strategic form, the consequences to the two players in every cell add up to−10. Is this a zero-sum game?
Explain the associations between: (a) zero-sum game and competition; and (b) positivesum game and coordination.
Some right-handed boxers also train themselves to box with their left hands. Which of the following strategies will be more effective? (a) Throw a left-hand punch after every three right-handers. (b) Box mainly with the right hand and throw a left-hand punch at random.
Explain the meaning of a randomized strategy.
If others do not act strategically (for instance, they use a non-equilibrium strategy), should I follow?
Which of the following are reasons to adopt a Nash equilibrium strategy?(a) I can minimize my expected loss.(b) I can guarantee a minimum outcome.(c) Even if the other party knows my strategy, it cannot take advantage of that information.
Explain why you should not use a dominated strategy.
In situations of (a) perfect competition and (b) monopoly, does it matter whether the seller acts strategically?
What is cannibalization and how can it be managed?
How does information technology affect a seller’s ability to discriminate on price?
Rank the various pricing policies in terms of profit.
How can consumer goods manufacturers use coupons to discriminate on price?
Typically, car rental agencies charge much higher prices for gasoline than nearby gas stations. Explain how this indirectly segments between drivers who are paying for the rental themselves and those who are renting at the expense of others.
Give an example of indirect segment discrimination. Discuss whether the example meets the conditions for such discrimination.
On which of the following products would it be easier to discriminate by the buyer’s location: newspapers or scientific journals? Explain your answer.
Explain the difference between FOB and CF prices.
Give an example of direct segment discrimination. Discuss whether the example meets the conditions for such discrimination.
What conditions are necessary to implement complete price discrimination?
How does complete price discrimination increase profit as compared with uniform pricing?
Book publishers typically set prices by the number of pages multiplied by a standard price per page. Comment on this pricing policy.
Using a new manufacturing process, Saturn Tire has reduced the marginal cost of a tire from $50 to $40. Should it reduce the selling price of a tire by $10?
Sol Electric manufactures low-energy light bulbs. The marginal production cost is $2 per unit while the price elasticity of demand is −1.25. With uniform pricing, what is the profit-maximizing price?
Many supermarkets sell both branded and private-label merchandise. A supermarket estimates that the demand for its private-label cola is less elastic than the demand for Coca-Cola. Should it set a higher price for private-label cola?
Compare purchases and price with a monopsony and perfectly competitive buyers.
A buyer with market power restrains its purchases to reduce the market price. True or false?
For a monopoly, the incremental margin percentage would be infinite. True or false?
Explain the profit-maximizing rule for R&D expenditure relative to sales revenue.
What factors affect the R&D elasticity of demand?
For a medical device, the advertising to sales ratio exceeds the incremental margin percentage multiplied by the advertising elasticity of demand. How can the manufacturer increase profit?
The profit-maximizing price for a new electronic device is $100. At that price, the advertising elasticity of the demand is 0.1 and sales are 500,000 units a year. The marginal cost of production is $40 per unit. How much should the publisher spend on advertising?
Why should a seller take account of both the marginal revenue and the marginal cost when considering how to adjust price following a change in demand?
Why should a seller take account of both the marginal revenue and the marginal cost when considering how to adjust price following a change in costs?
A software publisher has priced a new database program such that its marginal revenue is more than its marginal cost. Advise the company how to raise its profit.
True or false? A seller with market power can either set the price and let the market decide how much to buy, or set the quantity to sell and let the market decide the price, but not set both price and quantity.
For a seller with market power, why is marginal revenue less than or equal to price?
Explain how economies of scale can contribute to market power.
What are the major forms of intellectual property?
By way of an example, explain how product differentiation contributes to market power.
What are the strategic implications of the experience curve?
Draw an experience curve with a learning percentage of 100%.
What are the strategic implications of economies of scope?
Banks and insurers both need distribution networks to sell products and serve their customers. In France, many banks sell life insurance following a model called bancassurance.How can this be justified: economies of scale or scope?
Explain the difference between economies of scale and economies of scope.
What are the strategic implications of economies of scale?
Explain the difference between fixed cost and sunk cost.
The most substantial cost in family medicine practice is human resources. To treat twice as many patients, a clinic will probably need twice as many doctors, nurses, and other professional staff. Does this business have economies of scale?
In which situation are sunk costs more significant: (a) Tre Stagioni, which has a permanent staff of two chefs and five waiters; or (b) Campus Deli, which relies mainly on part-time workers, hired on a monthly basis?
“Our costs are very high because of the huge pensions of our retirees.” Are the pensions of retired employees relevant for forward-looking business decisions?
Mercury Transport is wholly equity-financed, while Jupiter Trucking has borrowed from banks to finance its business. The two businesses are otherwise identical. Jupiter is losing money, while Mercury is profitable. Compare the two businesses in terms of Stern Stewart’s “economic value added.”
Luna Biotech’s manufacturing division uses a unique patent-protected process to culture drugs. Presently, the division is operating at full capacity. How should it price its services to Luna’s marketing division?
There is a perfectly competitive market for lumber. Howmuch should Saturn’s residential development group pay the building materials division for lumber?
of this book.
A social enterprise provides free primary school education inWest Africa. It charges fees to just cover costs. The charity is completely financed by loans from European charities.Compare the school’s economic value added according to Stern Stewart’s definition and the definition in Chapter
A salesman buys lunch for a potential client. Why is this lunch not free for the client?
Free Duty offers tax-free sales of liquor and tobacco products at Hong Kong International Airport. If the demand is very inelastic, what would be the difference in the pre-tax prices of liquor and cigarettes between the airport and the city?
Travelers can reduce costs for airlines by booking tickets through online channels rather than travel agents. How would you assess whether airlines or consumers benefit from the lower cost?
Referring to Figure 6.3, under what condition of the price elasticity of supply would the incidence of the coupon on retailers be the highest?
Referring to Figure 6.4(a), under what condition of the price elasticity of demand would the incidence of the tax on consumers be the lowest?
Consider two otherwise identical e-commerce retail markets. In one, vendors offer free shipping, while in the other, vendors charge for shipping. What is the difference for the price (including shipping charges) that buyers pay?
Buyers of residential property must pay a percentage of the house price as a commission to the agent. In this context, explain the difference between the payment and incidence of the brokerage fee.
Explain the difference between CF pricing and FOB pricing.
Venus Fruit produces apples that the company uses to make juice as well as for sale to external customers. The apple market is perfectly competitive. How much should Venus charge the juice division for apples?
An integrated oil producer both produces crude oil and refines the oil for sale as gasoline, diesel, and other products in the retail market. In this context, explain the concept of a transfer price.
To limit inflation, some governments impose controls on increases in the prices of rice and other essential foods. Explain the impact on economic efficiency in the market for rice.
Consider a competitive finance market. Explain how the invisible hand ensures that the allocation of investment funds is economically efficient.
In some countries, self-employed people can evade income tax while people employed by the government and large organizations must pay income tax in full. Comment on the economic efficiency of the labor market.
In a World War II camp, every prisoner of war received an identical parcel containing cigarettes, chocolate, pen, and writing paper. Comment in terms of economic efficiency.
The external auditor of the local school system has found that some schools pay 20%more for cleaning services than other schools.Which condition of economic efficiency is being violated?
The government of the Soviet Union subsidized bread. In 1987, the Soviet leader Mikhail Gorbachev complained that children were kicking bread in football games. Comment on the economic efficiency of the production and consumption of bread.
How does the difference in short- and long-run effects of an increase in demand depend on the difference between short- and long-run price elasticities?
Suppose that demand increases.Why does production increase more in the long run than in the short run?
Suppose that demand increases. Why does the price increase more in the short run than in the long run?
Explain why the effect of an increase in wages on the market price of restaurant meals depends on the price elasticity of demand.
Under what conditions of the price elasticities of demand and supply would a reduction of supply (shift in supply curve to the left) have a larger effect on the quantity produced?
Under what conditions of the price elasticities of demand and supply would a reduction of supply (shift in supply curve to the left) have a larger effect on the price?
Consider an increase in consumer incomes that shifts the demand to the right (at every price, consumers want to buy more). Explain why the effect on the production of cars depends on the price elasticity of demand.
Under what conditions of the price elasticities of demand and supply would an upward shift in demand (due to buyers getting more benefit) have a larger effect on the quantity consumed?
Under what conditions of the price elasticities of demand and supply would an upward shift in demand (due to buyers getting more benefit) have a larger effect on the price?
Explainwhy the effect of an increase in consumer incomes on themarket price of clothing depends on the price elasticity of supply.
How would the requirement for a government license affect the competitiveness of an industry?
To what extent does the market for plywood meet the conditions for perfect competition?
To what extent does the market for dry cleaning meet the conditions for perfect competition?
Consider the price elasticity of the market supply of taxi service. Do you expect supply to be relatively more elastic with respect to the fare in the short run or long run?
cents per dozen and Farmer Luke produces 10,000 dozen eggs a month. If the price of eggs rises to $7 a dozen, Luke’s profit will increase by $1,000.
Does the following analysis under- or overestimate the change in profit? The price of eggs is
Presently, Jupiter Oil is producing 2,000 barrels of crude oil a day. The market price is$15 per barrel. Its marginal cost is $20 per barrel. Explain how the company can increase its profit.
Advertising is an important input into the marketing of shampoo. Explain the meaning of the marginal product of advertising for a manufacturer of shampoos.
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