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managerial economics
Managerial Economics 6th Edition Ivan Png - Solutions
Which of the following investments by a pilot is relatively more specific? (a) An MBA program. (b) Training on an airline’s flight management system.
How does the potential for holdup reduce the value of transactions and relationships?
Give an example of holdup. Explain what precautions to take.
Your compensation package includes shares of the company, which vest after three years. Explain the risk that you bear.
Explain the relation between monitoring and incentives.
Why is it better to pay a real estate broker by commission, as a percentage of the selling price of the property, rather than an hourly rate?
By considering benefits and costs to the various parties, explain why resolving moral hazard can be profitable.
Explain the moral hazard in the following situation. Angela has just bought insurance on her car to covers loss and damage. Her insurer is concerned that she may take fewer precautions against theft.
In the context of your business or organization, explain the meaning of organizational architecture.
How does the following contract help to resolve asymmetric information? Acquirer buys all of Target’s shares and pays partly in cash and partly in Acquirer shares.
A magazine publisher offers full refunds to any dissatisfied purchaser. Is the refund policy a credible signal of product quality?
To signal to the enemy that you would defend to the last, which strategy would be more credible: (a) destroy all roads, bridges, and fuel supplies or (b) leave infrastructure intact?
Consider a bank that offers deposit insurance, with the compensation to be paid from its own funds. Why is the deposit insurance not a credible signal?
Give an example of signaling. Explain: (a) the asymmetry of information; and (b) self- selection.
During peak hours, a tunnel is congested. From the standpoint of eco nomic efficiency, the tunnel service should be allocated to the drivers who value time most highly. Explain how a toll can achieve economic efficiency.
Motorcar insurers offer a choice of policies with higher deductibles and lower premiums and lower deductibles and higher premiums. Explain how this choice can screen among drivers with different behavior.
If a borrower defaults on a loan secured by collateral, the creditor can seize the collateral. Explain why the interest rate on secured loans is lower than that on unsecured loans.
Give an example of screening. Explain: (a) the asymmetry of information; and (b) self- selection.
Young people do not have much driving history. Does this explain why insurers are reluctant to insure young drivers?
Jill is about to buy a secondhand car at a below- market price. The seller assured Jill that the car is in perfect condition. Why should Jill get an expert to evaluate the car?
A manufacturer of women’s clothing pays production workers a piece rate. The human resources manager has proposed offering workers the choice of a fixed salary. Explain the possible adverse selection.
A bank has just rejected Lisa’s application for a loan. Lisa approaches the loan officer and offers to pay a higher interest rate. Why does the loan officer laugh?
In the following situations, explain the asymmetry of information, if any: (a) Investors do not know the next day’s Standard & Poor’s 500 Index. (b) Acquirer is planning a takeover bid for Target at $50 a share, which is 25% above the current market price of $40, and is secretly buying shares
Explain the difference between imperfect information and risk.
How do law and technology affect excludability?
For a public good, why is the combined marginal benefit equal to the sum of the individual marginal benefits?
Which of the following are public goods? (a) Medical treatment at a public hospital. (b) Welfare payments to unemployed people. (c) National defense.
Explain the difference between the marginal costs of (a) providing a public good to an additional consumer, and (b) increasing the quantity of a public good.
Give an example of a public good. Explain how the use of the good is non- rival.
Does the presence of network effects cause demand to be more or less price elastic?
Give an example of a network effect, and in that context explain the concepts of critical mass and tipping.
Explain the possible network effects in the demand for spreadsheet software.
Why does the assignment of rights affect the resolution of an externality?
Discuss the possible free- rider problem in the following context. Saturn City lies two miles off a busy highway. The city’s major businesses have proposed to build an exit from the highway to draw traffic into the city.
Explain how the following action will help to resolve the externalities generated by a new subway line: the subway system buys the property around the new stations.
When the sum of the marginal costs from a negative externality exceeds the marginal benefit to the source, what is the profit opportunity? Explain.
Explain the relation between the combined marginal benefit curve from additional customers for all retailers in a mall and the retailers’ individual marginal benefit curves.
Luna and Solis both launched a new consumer electronic device. Luna’s advertising is raising Solis’s demand. What is the economically efficient level of Luna’s advertising?
Explain the difference between a negative and a positive externality.
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 compen sation to be paid from its own funds. Why is this not credible?
Why are conditional strategic moves better than unconditional stra tegic moves?
What is first- mover advantage? How can you identify it?
In a game in extensive form, what is wrong with planning by reasoning for ward from the initial node?
In analyzing a strategic situation, why should we consider the timing of actions?
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 relations between: (a) zero- sum game and competition; and (b) positive- sum 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?
Why should you use a Nash equilibrium strategy?
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?
How does information technology affect a seller’s ability to discriminate on price?
Rank the various pricing policies in terms of information required.
Suppose that consumers whose time is more costly are less likely to use coupons. How can consumer goods manufacturers use coupons to dis criminate 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.
A manufacturer of luxury goods sets higher prices in China than France. What pricing policy is it applying?
Direct segment discrimination always yields less profit than complete price discrimination. True or false?
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.
A tire manufacturer has reduced the marginal cost of production from $50 to $40. Should it reduce the selling price of a tire by $10?
Consider a manufacturer of LED bulbs. The marginal production cost is$2 per unit, while the price elasticity of demand is −1.25. With uniform pricing, what price would maximize profits?
Many supermarkets sell both branded and own- label merchandise. A supermarket estimates that the demand for its own- label cola is less elastic than the demand for Coca- Cola. Should it set a higher price for own- 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?
Compare the production under a monopoly with perfect competition.
For a medical device, the R&D to sales ratio exceeds the incremental margin percentage multiplied by the R&D elasticity of demand. How can the manufacturer increase profit?
Explain the factors underlying the R&D elasticity of demand.
The demand for your product has become less elastic with respect to adver tising. How should you adjust advertising expenditure?
01. The marginal cost of production is $100 per unit. How much should the manufacturer spend on advertising?
The profit- maximizing price for a new smartphone is $500. At that price, sales are 500,000 units a year and the advertising elasticity of demand is
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 mar ginal 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.
“The average cost of each seat on the flight is $200. We cannot sell any ticket for less.” Please comment.
Accounting statements report sunk costs. How does this contribute to the sunk- cost fallacy?
How does the absence of opportunity costs in accounting statements con tribute to status quo bias?
Explain the differences between economies of scale and economies of scope.
Passenger aircraft can also carry freight in their bellies. Explain the econ omies of scope in the airline industry.
Explain the difference between joint cost and specific cost.
Fixed costs and sunk costs are the same. True or false?
To treat twice as many patients, a family medicine clinic will probably need twice as many doctors, nurses, and other professional staff. Does this business have economies of scale?
Which of the following best measures the cost of producing an additional unit of product? (a) Average cost; (b) Average fixed cost; (c) Average vari able cost.
1), should it also break down sunk costs into fixed/ variable and joint/ specific?
Referring to the taxonomy of costs (Figure
Luna Auto closed its truck manufacturing business. Yet, it continued to incur costs related to truck manufacturing. Please comment.
“Our costs are very high because of the huge pensions of our retirees.” Please comment.
The Kwok family owns a building in the city center and operates a depart ment store on the ground floor. Why should the family charge rent to the department store?
A salesman buys lunch for a potential client. Why is this lunch not free for the client?
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