Questions and Answers of Managerial Economics

You have been hired as a consultant to the CEO of the Copper Box Company. This company holds two patents, one for the technology for making the copper boxes and the other for a copper box design. The
You work for HiTek Bikes that designs and manufactures a high performance road bike frame, the Dura Carbon Ace. The demand curve for this frame is given by P = $6,600 - 10Q, where Q is the number of
Celtex is a large, quite successful, decentralized specialty chemical producer organized into five independent investment centers. Each of the five investment centers is free to buy products either
Numerous firms including Hertz, Bausch & Lomb, HCA, Clear Channel, and J. Crew have exited the public capital market via going-private transactions.In these deals a private equity firm such as
Christie's International PLC and Sotheby's Holdings are the two largest fine arts auction houses in the world. In January 2000, the announcement that Christie's had agreed to cooperate with the
An investor must file a 13D form upon accumulation of 5 percent of the stock of a publicly traded company. Typically the stock market reacts quite favorably to these announcements. But outside block
BioChem has a patent on a chemical product, that is, used as a key input in producing farm and home agricultural fertilizer. Currently, BioChem produces the product and sells it to companies who
Major oil companies use a dual distribution system for gasoline. Some stations are direct-serve, where the oil company delivers gasoline to the station. Other stations are served by distributors.
AutoCorp produces automobiles. It has asked the Amalgamated Fabric Company to consider a proposal to become a supplier of automobile seats. Under the proposal, Amalgamated Fabric would construct a
One might expect that the government's antitrust actions against Microsoft would have affected the values of other computer firms. In particular, direct competitors such as Netscape and Sun should be
World Motors (WM) is a large U.S. automobile manufacturing company. Eighty percent of its plants and sales are in the United States. WM is considering whether it should hire lobbyists to try to
Wilmorite Corporation owned a large tract of land and proposed erecting a large, modern enclosed shopping mall south of town. The mall was opposed by an environmental group that argued that the land
Johnson & Johnson sells a diverse array of products, including baby care, first aid and surgical products, prescription drugs, and industrial products. It operates in a decentralized fashion
Software Development, Inc., produces and markets software for personal computers, including spreadsheet, word processing, desktop publishing, and database management programs. SDI has annual sales of
In order to spur consumer spending in 1998, the Japanese government considered an $85 billion voucher system whereby every Japanese consumer would receive a shopping voucher that could be used to
According to a recent article in The Atlanta Journal-Constitution (Jan., 29th 2004), “materialism, not necessity, gave birth to dual-income families.” In supporting the argument, the author cites
Suppose that the U.S. government begins charging a $1 sales tax to all consumers for each dress shirt they buy. a. What is likely to happen to the price (not including the tax) and quantity
Suppose that annual demand in the U.S. market for ice cream cones can be expressed as QD = 800 + .2I - 100P, where QD is the number of cones demanded in millions of cones, I equals average
The rent control agency of Rochester has found that aggregate demand is P = 500 –5QD. Quantity, QD, is measured in thousands of apartments. Price, P, equals the monthly rental rate in dollars. The
Assume that the demand curve for sporting guns is described by QD =100 − 2 p and the supply is described by QS =−20+ p (QD & QS are in millions, p is in
Suppose there has been a storm in Nebraska that has destroyed part of the corn crop in the field. The demand curve for corn has not changed. As a result, the market clearing prices and quantities
According to an article in Forbes (March 2001) teen cigarette smoking declined significantly between 1975 and 2000. The most dramatic decline occurred in the years 1975–1981. Since then teen
In an article appearing in the Dow Jones News Service on February 5th, 2004, the agency cites Saudi Arabia’s concern about the production of oil by the OPEC cartel. Assume the current daily demand
A company chairman was given a ticket for a performance of Schubert’s Unfinished Symphony. Since he was unable to go, he passed the invitation to the company’s quality assurance manager. The next
LDS Hospital in Salt Lake City has a computer system that records all procedures performed on patients and all drugs administered. The computer system can track which surgeons are the best and which
According to a New York Times article, LDS Hospital in Salt Lake City installed a computer in every hospital room in the mid-1980s. These computers replaced paper charts so everything the doctor or
Guest Watches is a division of Guest Fashions, a large, international fashion designer. Guest Watches manufactures highly stylish watches for young adults (18€“30) who are fashion
“Hewlett-Packard now treats TQM like any other investment: If a particular total-quality initiative doesn’t show a quick return in terms of higher sales, lower costs, or happier customers, it is
Eastman Kodak charged that the Fuji Film Corporation of Japan was illegally dumping film in US markets. It asked the US government to investigate and impose sanctions on Fuji for its unfair
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
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,
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
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
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
Various politicians have proposed an Internet tax. One proposal would be to tax both outgoing e-mail and every web page downloa ded. What groups are likely to support such a tax and what groups would
What are the benefits of government regulation of air pollution from automobiles? What are the costs of this regulation?
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”
What would be the impact of raising the federal minimum wage?
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
At a city council meeting, the Taxi Cab Owners Association argued for a far increase. They note that the market price to buy or rent taxi medallions has been rising, and with these higher costs,
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
“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.
The analysis in this appendix suggests that a leader can sometimes motivate desired change by making a strong commitment to a particular action. Do you think it is always in the leader’s interest
Poorly performing employees in Japanese firms are sometimes punished by being sent to remote locations or placed at desks away from their colleagues. Discuss the effects that such a penalty will have
Alex Cohen is the general manager of the textile division in a large diversified company. Recently, Alex argued strongly to the CEO that an expansion request by the drug division be approved. On the
The TRF Company has not fared well with recent increases in foreign competition. Management indicates that it must substantially cut costs to survive. Cost cutting entails dramatic change for the
The PPP Company recently purchased a large chain of supermarkets (over 1,000 stores). Following this acquisition, PPP's management announced its plan to cut labor costs dramatically so that the
What is organizational power, and where does it come from?
What does leadership have to do with organizational architecture?
It is frequently claimed that meaningful change is difficult to achieve in large companies. Why do you think this might be the case?
What is leadership?
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
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
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
You are at a cocktail party, where you meet a CEO of a pharmaceutical company who has been thinking recently about her overseas distributors who have exclusive sales territories. She can't quite
Most of the McDonald’s restaurants in the Rochester area are owned by one individual. Discuss why this ownership pattern makes economic sense.
BQT Manufacturing produces electric lamps. To produce these lamps, BQT must either make or acquire bases for the lamps. Currently, the company outsources the production of the bases for their lamps
Jimmy’s Stereo Company manufactures stereo equipment. Its business strategy is to provide retail customers high-quality equipment, along with good service and warranty protection. It currently
Advanced Interconnect Manufacturing Inc. (AIM) is an independent company. It is located in the Elmgrove plant at Kodak. It was formerly owned by Kodak, but was purchased by five managers (with the
The Hidden Dog 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
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
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 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.
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
Discuss the pros and cons of the policy described in the following quote from Fortune : According to the new thinking, any kind of work to which a company can't bring a special set of skills should
Why is a large accounting firm more likely to organize as a partnership than a large industrial company?
Some firms have increased their values by “going private” (converting from publicly traded to closely held). What are the potential sources of these gains? Should all publicly traded firms
Firms sometimes change their legal form of organization. Why?
Which of the following businesses is more likely to incorporate: a small retail clothing store or a small exercise facility/health club? Explain.
A number of hospitals have converted from nonprofit to for-profit organizations. Provide an economic justification for these conversions. Why have some communities acted to block or regulate these
Typically the residual-claim holders in an organization also have significant decision control rights. Provide an economic rationale for this observation.
From an efficient risk-bearing standpoint it makes sense for investors to hold diversified claims in all firms. Yet we observe partnerships and closely held corporations, which have concentrated
Leone, Van Horn, and Wassley is a law firm with over 60 partners. Its partners share equally in the annual profits of the organization. Ryall, Misra, a nd Marx is a law firm of about the same size.
For-profit forms of organization vary in at least four important dimensions. Name them.
The City Museum is a large nonprofit metropolitan art museum. Over the past five years, City Museum has made a significant profit because its admission fees exceed the museum’s operating costs.
Is the likelihood of CEO turnover is related to firm performance? Give several examples to support your position.
Describe the “passing the baton” approach to CEO succession. What other methods are used?
Discuss why CEO succession planning is an important activity for the board of directors.
What is a proxy fight? What potential effects do proxy fights have on managerial incentives?
What are the benefits and costs of corporate voting over the Internet? Do you think this type of voting will increase in the future?
What is meant by cumulative voting, classified board, and voting by proxy?
Have shareholder proposals been an important governance mechanism over the past 20 years? Do you see any changes occurring in today’s environment?
What changes have been taking place in shareholder activism since the recent business scandals?
Have institutional investors been very active in the corporate governance process over the past 20 years? Which institutional investors have been the most active? Why?
Are stock options to blame for the earnings management scandals?
What does it mean to “overpay” a CEO? Do you think that some CEOs are overpaid? What about the “typical” CEO?
What role does the SEC play in corporate governance in the U.S. ?
Briefly discuss the effects and motives for recent changes and trends in corporate governance in Europe and Japan .
Compare and contrast the key features of the traditional corporate governance systems found in the U.S. , Japan , and Germany .
What external parties monitor managers? Access how these parties performed their roles in the 1990s. Discuss the current pressures on these parties.
What is the Sarbanes-Oxley Act of 2002 (SOX)? List its major provisions. Discuss the costs and benefits of the SOX and evidence on whether the net benefits have been positive or negative.
Discuss how “market forces” help to reinforce internal governance systems.
What incentives if any do board members and management have to work in the interests of shareholders and the corporation?
What characteristics do you think are important in evaluating the quality of a corporate board?
Are the stock exchanges’ new rules relating to corporate Boards of Directors the answer to existing governance concerns in the United States ?
Why is important to separate decision management and control in publicly traded corporations? Discuss how a well designed governance system achieves this objective.
What are the primary sources of decision rights at the top of publicly traded corporations? Discuss the allocation of decision rights at the top of the typical U.S. corporation.
What are the major costs and benefits of organizing as a publicly traded corporation?
What is the “business judgment rule”? Discuss the economic logic for this legal precedent.
What are the three key objectives of corporate governance?

Showing 400 - 500 of 755